Any Tax Guru's here? Looking to buy a small farm.

[daveswoodhauler]

Trying to calculate the Penalty for an early IRA withdrawal....and I'm getting a little confused.
Here is the situation, my wife and I have always wanted to own an older home with a small farm potential....not for a real income, just cause we like it and have always wanted a place to grow blueberries, apples, pumpkins, strawberries, etc...I guess we are busy bodies (No dairy stuff, perhaps some chickens and a few goats....again, not for real income....just the life we have wanted for a while) Its about a 12 acre parcel, so I am drooling of all the firewood potential.
Anyway, we are going to look at a property this weekend, completely restored 1780's house on 12 acres.....I need to tap into an IRA early to make it work....its a little out of our price range, but we are willing to bite the bullet.
I guess here is the question, if I cash in an IRA early, say $30,000 or $50,000 am I paying taxes on the entire distribution plus 10%, or only paying the taxes and 10% penalty on the increase in value from what I bought/sold it at. (I'm thinking the entire amount as this is not a ROTH, and the original amount was not subject to taxes)
Normally, I would never cash in one early, but this is a good chance for us with the depressed housing market, and the property is in the first stages of foreclosure.
So, just thought I would check as I am sure there is a tax person ouot there.
Thanks.

Edit: We are in a pretty low tax bracket......about $80K a year in income with 3 kids all under 7...wife does not have an income but she works harder than I do

 

[SolarAndWood]

Can you borrow against your IRA instead of withdrawing it? That 10% is brutal. It could also move you into a higher bracket and threaten some of your deductions.

BTW, best wishes with your dream.

 

[daveswoodhauler]

I can take a loan from my 401K, but not the IRA...and the loan on the 401K would be smaller due to restrictions.
The property used to be an orchard, but hasn;t been active for a while, so I would need to take some arborist lessons.
I know its a big hit to take, but most of the IRA is an old 401K the was rolled over, so a lot of the $$ is company contributions....just hate to pass up on something like this.....gotta live the dream, right?

 

[SolarAndWood]

definitely have to live the dream...there is 120 acres just listed a couple miles down the road that has me thinking the same thing

 

[Jack Straw]

Solar- you put a decent house on that many acres here in New York your property taxes will choke a horse. Better find a way to get farm credit to lower the taxes....

 

[MANIAC]

I have been out of the tax profession for a few years but I believe if you are under 59 1/2 and withdraw anything you're subject to the tax plus the 10% penalty. If you withdraw after 59 1/2 you are only subject to the tax. As for what you pay tax on, if you put the $$ in tax free then when you take it out you pay tax on the entire amount.

I'll confirm the 59 1/2 rule for you.


[quote author="ilikewood" date="1

257396800"]Trying to calculate the Penalty for an early IRA withdrawal....and I'm getting a little confused.
Here is the situation, my wife and I have always wanted to own an older home with a small farm potential....not for a real income, just cause we like it and have always wanted a place to grow blueberries, apples, pumpkins, strawberries, etc...I guess we are busy bodies (No dairy stuff, perhaps some chickens and a few goats....again, not for real income....just the life we have wanted for a while) Its about a 12 acre parcel, so I am drooling of all the firewood potential.
Anyway, we are going to look at a property this weekend, completely restored 1780's house on 12 acres.....I need to tap into an IRA early to make it work....its a little out of our price range, but we are willing to bite the bullet.
I guess here is the question, if I cash in an IRA early, say $30,000 or $50,000 am I paying taxes on the entire distribution plus 10%, or only paying the taxes and 10% penalty on the increase in value from what I bought/sold it at. (I'm thinking the entire amount as this is not a ROTH, and the original amount was not subject to taxes)
Normally, I would never cash in one early, but this is a good chance for us with the depressed housing market, and the property is in the first stages of foreclosure.
So, just thought I would check as I am sure there is a tax person ouot there.
Thanks.

Edit: We are in a pretty low tax bracket......about $80K a year in income with 3 kids all under 7...wife does not have an income but she works harder than I do[/quote

 

[SolarAndWood]

Solar- you put a decent house on that many acres here in New York your property taxes will choke a horse.

I heard ya and I fear its only going to get worse. The flip side of that is a property that large within 6 miles of downtown is going so see some capital appreciation in my lifetime no matter what the economy does. And, if Armageddon happens, it is on the high ground