Cashing in IRA's for first deal

[Kevin Zwieg]

I have found my first deal and am ready to write an offer. It's a bank-owned property that needs new carpeting, paint and a good cleaning. I am planning to clean it up and rent/sell it, NOT live in it. 

I am counting on my rollover IRA to fund the downpayment, and now it's game time to get those funds available as cash in hand.

I have: 

-$14k in a traditional IRA

-$5k in Roth IRA

I have pre-approval from my bank for a conventional loan in my name for $80,000 purchase price ($12k down, $68,000 loan).

I've searched the forums, but haven't found resolution to my exact situation. What are my tax consequences in liquidating my IRA accounts for a down payment? I need some assistance in determining if I can invoke the "first time homebuyer" qualified distribution and what my tax/penalty consequences will be. I am also assuming that I should avoid the self-directed IRA route, since I am counting on sweat-equity to add value to this property.

[Dmitriy Fomichenko]

Kevin,

The "First Time Home buyer" does not apply to investment properties, only for first time residence purchase. 

When you take early distribution from an IRA you will have to pay penalties and the amount you take will be considered income so you will have to pay ordinary income tax on it.

Roth contributions can come out tax-free, but the earnings will be taxed and penalized also.

https://www.irs.gov/newsroom/what-if-i-withdraw-mo...