401k loan tax deduction?

Last year my wife and I purchased a home. Part of our downpayment came from a 401k loan. I watched a show on CNBC this evening that said that the interest on a 401k loan is tax deductible if it is used for the downpayment on a home. I searched the IRS web site but couldn't find anything on this. Is this true? If so, which form do I use? Are the any other rules or income limitations? Thanks in advance.

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Reply to
MPeter
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Switch to the cartoon network. Evidently you'll get better tax advice there. It's not deductible

-- Phil Marti Clarksburg, MD

Reply to
Phil Marti

I think you may be confusing two different issues.

A disbursement from a 401k is NOT subject to the early withdrawal penalty if used toward purchase of a "first" home (and under $10,000), although it's still taxable. Interest paid on a 401k mortgage loan SHOULD be deductible as mortgage interest, even if paid to "yourself". However, there is some disagreement among professionals, and there seems no specific guidance from the IRS or from the courts. I don't think CNN is a good source of tax guidance. I'm not even sure that H&R Block is a good source of tax guidance.

Reply to
Arthur L. Rubin

It fails every test for being deductible...... It is being paid to a related party, namely yourself. No one is reporting the interest income. The loan is not secured by the home. It is not investment interest.

-- Alan

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Reply to
A.G. Kalman

Really now. Did they give a citation? No? Didn't think so.

The person who said this is on CNBC was wrong. Period. If nothing else, interest used to buy your home must be on a mortgage secured by your residence. Your 401(k) does not and CAN not have a mortgage on your home.

-- David M. Woods, EA, ChFC, CLU Woods Financial Services Norwood, MA 02062

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Reply to
David Woods, EA, ChFC, CLU

No this is not true. You might want to write or email CNBC and complain. __ Art Kamlet ArtKamlet @ AOL.com Columbus OH K2PZH

Reply to
Arthur Kamlet

Please don't believe everything you hear on TV.

One of the requirements for the home mortgage interest deduction is that the loan be secured with the home itself as collateral. Therefore, interest on a standard mortgage loan is deductible, interest on a home equity loan is deductible (within limits), and so on. But in most cases, interest on a loan from a friend, a bank, your 401(k), or whatever source that does not feature the property as collateral is not deductible.

Sorry, it's not there to find. For more information, look on the site for Pub 530, Tax Information for First-Time Homeowners, and Pub 936, Home Mortgage Interest Deduction. Bryan

-- Bryan Kellar, EA Oregon Tax Help, Inc. -- Portland, Oregon

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Reply to
Bryan Kellar

Not true. While that exception applies to IRA distributions, it does not apply to 401(k) distributions. See Publication 575.

I have never seen a 401(k) loan secured by real estate, which is a requirement for the deduction of mortgage interest.

-- Phil Marti Clarksburg, MD

Reply to
Phil Marti

I think you are confused. The exemption for first-time homebuyer applies to IRA withdrawals, NOT 401Ks.

I disagree. The loan is secured by funds in the 401K, not the house. You can't deduct the interest you pay to yourself, since you never paid tax on the interest income.

I thought the reference was to CNBC, not CNN.

Reply to
Herb Smith

That part is wrong. There's an increase in the loan duration duration limit for 401(k) mortgage loans, and the loan must be secured by the house. (I'm not sure what happens if the 401(k) has to foreclose....)

Reply to
Arthur L. Rubin

Hey! I resent that! I'll have you know that on occasion, Cartoon Network stills airs a cartoon worth watching, like Justice League and Megas XLR.

-- David M. Woods, EA, ChFC, CLU Woods Financial Services Norwood, MA 02062

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Moderator: And my hero: Rocket J. Squirrel with his partner, the most successfull graduate of WhatsaMatta U., Bullwinkle Moose. BTW: Boris and Nattasa graduated from Duke which means they live in New Jersey.

Reply to
David Woods, EA, ChFC, CLU

On what grounds? Is the mortgage secured by the property? If not (and it can't be without disqualifying the account) then it's not qualified mortgage interest.

Oh I'm sure about H&R Block. I'll simply refrain from stating what I am sure of about them.

-- David M. Woods, EA, ChFC, CLU Woods Financial Services Norwood, MA 02062

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Reply to
David Woods, EA, ChFC, CLU

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