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Using an IRA Withdrawal for a Qualified Home Purchase
Purchasing a home is an expensive proposition that leaves many would-be buyers feeling cash strapped. If that’s you, you might be thinking about taking some money out of your traditional IRA to help fund the purchase. But should you? Afterall, a 10% penalty normally applies to IRA withdrawals before age 59 1/2. The good news is that there’s an exception to the penalty for certain home purchases, subject to a lifetime limit of $10,000.
To qualify, you must be purchasing an eligible “first-time” principal residence for yourself, your spouse, your child, your spouse’s child, your grandchild, or your parent or other ancestor. In addition, neither you nor your spouse, if applicable, can have owned a principal residence within the two-year period that ends on the acquisition date. The acquisition date is the date you enter a binding contract to buy the home or the date the building or rebuilding begins.
Timing is critical. The funds must be spent to pay qualified acquisition costs within 120 days of the day you receive the withdrawal. Qualified acquisition costs include the costs of buying, building or rebuilding a home, plus any usual or reasonable settlement, financing or other closing costs.
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Get a Jump on Tax Planning
Summer is a good time for some tax planning that could lower your 2024 tax bill. Since the passage of the Tax Cuts and Jobs Act, which increased the standard deduction, fewer people benefit from itemizing deductions. You can use this IRS Interactive Tax Assistant to find your 2024 standard deduction.
If it’s looking like your itemized deductions for the year will be close to or exceed your standard deduction, here are some ways to increase your itemized deductions and possibly lower your tax bill:
- Accelerate elective medical, dental and vision care expenses into 2024.
- Beef up charitable donations to IRS-approved charities.
- Make your Jan. 1, 2025, mortgage payment in 2024, and consider prepaying state and local income tax and property taxes that are due in early 2025. (But watch out for the $10,000 annual limit on the state and local tax deduction; $5,000 if you’re married and will be filing separately.)
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How to Deduct Business Travel
Before traveling for business, it’s important to know what’s tax deductible. Through 2025, employees aren’t permitted to deduct unreimbursed business expenses, including travel expenses, but self-employed people may deduct business travel expenses on Schedule C. Businesses may deduct employees’ travel expenses if they provide advances or reimbursements to employees or pay the expenses directly.
For expenses to qualify for the deduction, travel must take someone away from his or her main place of work for business reasons, and the demands of the work must be such that the person must sleep away from home. In addition, the expense must be ordinary and necessary, not lavish or for personal purposes.
Deductible expenses include travel by plane, train, bus or car, as well as fares for work-related taxi rides or rideshares while away. Also deductible are lodging, 50% of meal expenses, business communication costs and tips paid for business-related services. Keep good records to support deductions, including the business purpose for each expense.
