Definition of a First Home With the IRA

Using an early IRA distribution for a first home can avoid the early withdrawal penalty.

Sold Home For Sale Sign & New House image by Andy Dean from

The Internal Revenue Service rules allow a special exemption from the additional tax on early IRA withdrawals, saving those distributions from the 10 percent penalty. Contrary to your intuition, under the IRS definitions, you can qualify to be a first-time home buyer more than once in your lifetime. Knowing how you can use the exception can help you avoid extra taxes.

First-Time Home Buyer Defined

For the purposes of the IRA distributions, a first-time home buyer is anyone who hasn't owned a present interest in a main home for the previous two years. For example, if your parents have promised to leave you their home in their will, that isn't a present interest in the home, so you still qualify. As a result, you can qualify as a first-time home buyer several times during your lifetime. For example, if you sell your home and live in an apartment for three years, you're now a first-time home buyer under the IRA definition.

Rules for Married Couples

If you're married, special rules apply to determining whether you qualify as a first-time home buyer. Not only do you have to meet the requirements, but your spouse must also meet the requirements. For example, if your spouse owned a home in the past two years but you have not, you can't use the first-time home buyer exception.

Date of Acquisition

The two-year period is measured from the date you acquire the new home. The date of acquisition depends on whether you are buying or building your new home. If you are buying the home, the date of acquisition is the date you sign a binding contract to buy the home. If you're building the home, the date of acquisition is the date you start building or rebuilding the home.

IRA Early Withdrawal Exception

When using the IRA early withdrawal exception for first-time home buyers, you're limited to $10,000 of exceptions over your lifetime. However, you don't have to be the first-time home buyer. Instead, you can use the exception to take an early distribution for your parents, grandparents, children or grandchildren. For example, if your son qualifies as a first-time home buyer, you can take the money out of your IRA and use it to buy the first home for your son without having to pay the early withdrawal penalty.