Well, there's an exclusion from the 10% penalty for $10,000 to a home buyer. And, he has $8,500 in taxes paid. And, for 2008 purchases of homes there's a $7,500 "credit" that's actually an interest-free loan unless Congress changes it to a real credit. All those have qualifiers, but hopefully you've read the instructions already. What else are you looking for? He can deduct mortgage interest and points and property tax on Schedule A. If he actually has a loan from his 401(k) instead of a distribution from his IRA, he needs to deal with getting corrected paperwork, but it sounds like the documents are correct.