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Does this strategy make any sense?

Can you take an early IRA distribution near year's end and use the tax owed to offset tax deductions such as mortgage interest,etc.......
pay it back in the following tax year, within the 60 day window to avoid the penalty?

It won't work. Let's say you take the distribution in December 2002 and put it back in January 2003. There is no 2002 tax liability because the rollover was completed within the 60 day window. To create a 2002 tax liability, you would have to keep the money out of your IRA for more than 60 days, after which you can't put it back in.

IOW, the fact that the rollover spans the change of tax year doesn't change the treatment.

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