Tax sheltered annuity for down payment

[Kevin Gallagher]

I'm new to investing. My parents want to move here but can't move until they sell their house. We thought this would be a good time to start investing. My parents are willing to rent from us until they find a place. We are wanting to buy a house listed on Zillow at 185K for 135k. It is a great neighborhood. The homes that back up to this house are worth 400k. The seller wants out and wants the cash to rehab their new home. We wanted to put 25% down and use our 63K tax annuity. We won't pay a penalty because we are older than 59. The adviser told me we would have 46k after taxes. We can withhold taxes until the spring and then pay back the annuity (we have 60 days to pay back with no taxes) but we don't know how soon a refinance or HELOC can happen. We had thought we'd put about 36K down and use the 27k leftover from 63k for rehab. We don't really know the repair costs. If we pay the tax, we only have about 12k for repairs. That might be enough.

It’s a 3BR 2 Bath. We want to turn the ‘bedroom’ back into a garage.  A new walk in shower needs to be installed for my dad. It really only needs lots of cleaning and fresh paint.  Hardwood floors throughout. The inspection is Tuesday.  We’ll have a better sense about the repairs after inspection.  

1) should I use the annuity as a down payment and take the tax hit or withhold taxes until the spring and potentially pay back the annuity using equity from a refinance?  Seems like there would be equity immediately since we are buying below market value.

2) Do we pay income tax when using equity from refinance?

Thanks,  feel like we’re learning a lot quickly but also feeling like we might be in something way over our head.

Kevin