I have a client that withdrew from her IRA in order to pay for home improvements in order to sell the house. What tax forms do I use to deduct the costs?

She did buy another home.  She withdrew well over $100,000 from her IRA.  She has a detailed account of what was done to make the house sellable plus to cover the closing costs.  She did not receive a 1099-S because the sale price was below the exclusion amount.  Where can I take the home improvements costs and the closing costs deductions that consumed all of the money she withdrew from her IRA so that it doesn't look like she has over $100,000 of "income" from her IRA distribution?

Answer

I am far from a tax expert and you need one on this. My gut says she is screwed. Unless she and spouse each "borrowed" from respective 401k accounts. The limit on home buying appears to be $10k and only for first time home buyers. If she had a self-directed IRA she could loan the money in an arms length transaction for investment or flip purposes but pouring $100k into repairs just to dispose of a primary residence does not fit into what I see. It doesn't even make financial sense if the money was free unless the 100k spent returned well over 150k in increased sale price


https://www.investopedia.com/articles/personal-finance/110415/can-you-use-your-ira-buy-house.asp

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