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@puravidapto wrote:

The form 8606 line 23 amount 20,000 subject to penalty has the first time home purchase exception factored in (10,000 in line 20), does it?

 amount subject to penalty as shown on line 23 of the form 8606? Is that 30,000? If so, then how can the first time home purchase reduce the amount from 30,000 to 10,000 as shown in your form 5329?

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Line 23 is NOT the amount subject to a penalty and that does NOT automatically go to Line 1 of the 5329.  Line 1 of the 5329 is going coming from the post 2006 conversion of $20,000.