How to Report an IRA Withdrawal for a Home Purchase

To report an IRA withdrawal for a home purchase, you file Form 5329 with your Form 1040 and enter exception code 09 on Line 2 of Part I. That’s the step that waives the 10% early withdrawal penalty. If the money came from a Roth IRA, you also attach Form 8606 to work out how much of the distribution is taxable. The gross distribution and the taxable portion get reported on Lines 4a and 4b of Form 1040. Your IRA custodian’s Form 1099-R feeds all of it.

The waiver isn’t automatic. If you skip Form 5329, the IRS treats the withdrawal as an ordinary early distribution and bills you the 10% additional tax.

Start With the 1099-R Your Custodian Sends

Your IRA custodian issues Form 1099-R after the distribution. Box 1 shows the gross amount, Box 4 shows any federal tax withheld, and Box 7 carries a distribution code. For a homebuyer withdrawal, Box 7 will almost always read Code 1, meaning “early distribution, no known exception.”¹ That’s expected. The custodian doesn’t know what you spent the money on; claiming the exception is your job on Form 5329.

Fill Out Form 5329 to Claim the Penalty Waiver

Part I of Form 5329 is where the penalty waiver actually happens. Work through it line by line with the 1099-R in front of you.

Line 1: Enter the early distribution amount that’s includible in your income. For a traditional IRA, this is generally the full Box 1 figure. For a Roth IRA, enter the taxable amount from Form 8606 (Line 25c).²
Line 2: Enter the amount qualifying for the homebuyer exception, up to $10,000. In the space provided, write exception number 09, the code for an IRA distribution used to buy a first home.²
Line 3: Subtract Line 2 from Line 1. If your qualifying withdrawal was $10,000 or less, this is zero.
Line 4: Multiply Line 3 by 10%. That’s the additional tax on any portion not covered by an exception. If Line 3 is zero, you owe no penalty.

If your withdrawal exceeded $10,000 and another exception applies to part of the excess (unreimbursed medical expenses, for instance), enter exception code 99 on Line 2 and combine the exempt amounts. Otherwise, only the first $10,000 is shielded and the rest flows to Line 4. If you’re married and both spouses are drawing from their own IRAs for the same home, each spouse files a separate Form 5329 against their own $10,000 limit.³

Add Form 8606 for a Roth IRA Withdrawal

Roth distributions come out in a set order: contributions first, then conversions, then earnings.³ Contributions were already taxed going in, so withdrawing them creates no tax and no penalty regardless of the reason. Form 8606 Part III walks through this ordering and calculates how much of your withdrawal came from each layer. Line 20 is specifically for qualified first-time homebuyer distributions.⁴

Earnings depend on the five-year rule. If your Roth has been open at least five tax years, up to $10,000 of earnings withdrawn for a first home is a qualified distribution and comes out completely tax-free.³ If the account hasn’t hit five years, the penalty is still waived through Form 5329, but earnings are taxed as ordinary income. The taxable figure Form 8606 produces feeds into Line 1 of Form 5329 and into Line 4b of Form 1040.

Report the Distribution on Form 1040 Lines 4a and 4b

IRA distributions land on Lines 4a and 4b of Form 1040.⁵ Line 4a is the gross distribution from Box 1 of your 1099-R. Line 4b is the taxable portion.

For a traditional IRA, both lines typically show the same number, because the entire distribution is includible in income. The homebuyer exception doesn’t reduce Line 4b; it only removes the 10% additional tax that would otherwise show up on Schedule 2 through Form 5329. Your ordinary income tax on the distribution still applies.⁶

For a Roth IRA where you only pulled contributions, Line 4a shows the gross distribution and Line 4b is zero. If earnings were included and taxable, Line 4b reflects that earnings amount from Form 8606.

Get this split right. If you report a traditional IRA distribution as non-taxable on Line 4b, the IRS matching system will flag the return against the 1099-R your custodian already filed. That mismatch triggers an automated notice and potentially a 20% accuracy-related penalty on any resulting underpayment.⁷

The Conditions Your Reporting Depends On

Your Form 5329 claim only holds up if the underlying facts qualify. A few things need to be true.

You count as a first-time homebuyer if you had no ownership interest in a main home during the two years before the new purchase. If you’re married, your spouse must meet the same two-year test.⁸ Someone who owned a home years ago but has been renting since can still qualify.

The cap is $10,000 per person over your lifetime, not per purchase.⁹ If you used $6,000 of the exception years ago, only $4,000 remains available now.

You have 120 days from the date the funds leave your IRA to spend them on the purchase price, construction or reconstruction costs, or usual settlement, financing, and closing costs.⁸ The clock starts on the distribution date, not the closing date.

The home doesn’t have to be for you. The exception also covers a home bought for your spouse, child, grandchild, parent, or other ancestor, as long as that person independently meets the first-time buyer definition. The $10,000 still counts against your lifetime cap.³

Watch the Withholding on the Way Out

Custodians withhold 10% for federal income tax by default unless you tell them otherwise.¹⁰ A $10,000 gross withdrawal arrives as $9,000 in your account. If you need the full amount for closing, submit Form W-4R to your custodian before the distribution and elect 0% withholding. The income tax still comes due when you file, but you’ll have the full sum for the purchase. Some states also withhold, and not every state honors the federal homebuyer exception, so check your state’s rules before assuming the IRS is your only tax bill.

If the Deal Falls Through

If closing is cancelled or delayed past 120 days, you’re not automatically stuck with the tax and penalty. The tax code gives a special 120-day window, not the usual 60-day rollover period, to put the money back into an IRA.¹¹ The 120 days run from the original distribution date. Redeposit the full amount inside that window and the distribution is treated as a rollover; no penalty, no income tax on the returned amount. Miss it and the withdrawal stands as taxable.

Filing and Records

The filing deadline for 2025 returns is April 15, 2026.¹² E-filing gets you an acknowledgment almost immediately. On paper, mail your signed Form 1040 with Form 5329 attached, plus Form 8606 if you drew from a Roth, to the IRS service center for your region. Paper returns typically take six to eight weeks to process.

Keep the purchase contract, closing disclosure, custodian distribution statement, and copies of every form you filed. The IRS generally has three years to question a return, and the homebuyer exception is exactly the kind of claim that draws follow-up questions. Documentation showing the distribution date and closing date proves you met the 120-day rule. Hold onto these records for at least four years after filing.

1
Internal Revenue Service. Instructions for Forms 1099-R and 5498
2
Internal Revenue Service. Instructions for Form 5329
3
Internal Revenue Service. Publication 590-B, Distributions From Individual Retirement Arrangements
4
Internal Revenue Service. Instructions for Form 8606
5
Internal Revenue Service. 1040 (2025) Instructions
6
Internal Revenue Service. Topic No. 557, Additional Tax on Early Distributions From Traditional and Roth IRAs
7
Office of the Law Revision Counsel. 26 USC 6662 – Imposition of Accuracy-Related Penalty on Underpayments
8
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
9
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
10
Internal Revenue Service. Pensions and Annuity Withholding
11
Internal Revenue Service. IRS Letter Ruling on Section 72(t)(8)(E)
12
Internal Revenue Service. When to File