Large Downpayment make sense

[John Schnyderite]

This is going to be a long one, so prepare yourself =)

My fiancee and I have been house hunting for a personal residence for a few months now. I own a home since '09 that is underwater (stand to lose 18K or so incl. commissions paid, closing, etc).

We want to upgrade to a larger home and planned on putting 20% down. Although we don't like the idea of taking that big of a hit selling my place, we would only be approved for 300K or so while holding my existing mortgage -- which doesn't buy much in NJ.

We recently found out that my fiancee stands to receive an IRA inheritance from her grandmother who passed. Initially, I thought we would distribute 10K or so a year, since from my understanding this would count as income and put us into a new tax bracket if we were to take a lump sum.

I guess my first question would be about the IRA since I don't know much on the topic. Are there any benefits to taking a lump sum?

2nd question is regarding the downpayment and taxes -- Does putting 40% down ever make sense or it better to put 20% down, take our tax benefits from paying property tax/insurance etc over 30 years, and put the remainder of our money into other investments?

And lastly, are there any tax benefits to selling my current home for a loss? It is currently my primary residence. Would renting for a year or two give us an ability to write off as an investment loss? Any recommendations on what I can do here?

Thanks for any input!