New York City Police Pension Fund
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Tier 2 - Taxable Loan for Residence

Principal Residence Exception

Ordinarily, a pension loan must be repaid within five years to avoid tax consequences. 

However, IRS Code 72 (p) (2) (B) (ii) provides an exception to this rule. When a member takes a taxable pension loan in order to purchase a principal residence, the IRS permits the member to defer taxes on that loan if certain conditions are met. 

To take advantage of this exception, the member must establish to the satisfaction of the IRS that he/she applied the loan toward the purchase of a principal residence.

The maximum residence loan exception amount is $50,000 per member. If both spouses are uniformed members of service, each spouse may claim the $50,000 amount.

This exception is not available to members of the service who are in the process of retiring.  

Seek Professional Tax Advice

The Police Pension Fund does not provide tax counsel. It is the member’s responsibility to comply with the terms of IRS Code 72 (p) (2) (B) (ii). It is therefore recommended that members consult with a tax professional prior to taking advantage of this exception.