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CARES Act - Elimination of Early Withdrawal Penalty (First Time Home Buyer)

martinmilas
Level 2

Hello,

I have a client who took out a retirement distribution before the age of 59 1/2 to put down a down payment on a new home (first time home buyer), and am looking for a little feedback regarding the taxation and elimination of the 10% early withdrawal penalty. I know that under the CARES act if you are considered a "qualified person" the IRS will waive 10% early withdrawal penalty and the taxation of the distribution can be spread out over 3 years. My question mainly pertains to who qualifies as a "qualified individual." I have read who qualifies on the IRS website, but it is not totally clear. My client was forced to work from home due to COVID but did not get COVID, have a roommate who had COVID,  nor did their income/hours drop as a result of COVID. Would the fact that they were forced to quarantine throughout the year be enough to qualify them as a "qualified person?" 

Also, does anyone know how to enter this into Lacerte?

Thank you,

Martin

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8 Replies 8
sjrcpa
Level 15

Working from home does not equal quarantine. (Even though it may feel like it.)


ex-AllStar
IRonMaN
Level 15

Working from home is working from home.  But I hear working from home with young kids is worse than quarantine.


ACME Tax - where the 3rd 1040X is always free
qbteachmt
Level 15

"My question mainly pertains to who qualifies as a "qualified individual.""

You know you have a few things intertwined that don't relate, right? The Home Buyer provision has nothing to do with CARES, nor the deferral for up to three years for reporting a taxable distribution. The covid issue and the home buyer issue are two different reasons you might get the early distribution 10% penalty waived.

So, which qualification do you really need to read about?

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CPA4Life
Level 2

I have a client who was furloughed from his job during March/April and made his early distribution at that time. I believe that qualifies with the CARES Act.

The 1099 he sent has the distribution code as "1" which forces a 10% penalty. How do I eliminate that on Lacerte? Would I change the distribution code as "2" even though that's not what the 1099 states? 

Any help here would be greatly appreciated, thank you!

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qbteachmt
Level 15

"has the distribution code as "1" which forces a 10% penalty."

You enter the 1099-R  as you see it. You use the program to mark the option that this is waived due to qualifying. Then, you address if they want to include it all in the tax year or take it over 3 years, which is the form 8915-E that isn't available, yet.

You don't enter a code not on that form.

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"Level Up" is a gaming function, not a real life function.
CPA4Life
Level 2

Thank you for the response.

On what screen on Lacerte do I check the box to waive the penalty?

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qbteachmt
Level 15

https://proconnect.intuit.com/community/form-1099-r/help/how-to-enter-coronavirus-related-retirement...

 

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"Level Up" is a gaming function, not a real life function.
CPA4Life
Level 2

Exactly what I needed. You were such a huge help, thank you so much! 

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