The distribution is included in gross income; there is no exclusion in the law for using retirement account funds for this purpose. However, because you are over age 59½, there is no 10% early distribution penalty. Younger participants taking 401(k) withdrawals for home-buying costs are subject to penalty. The exemption from the 10% penalty only applies to withdrawals from IRAs for first-time homebuyers, and only up to $10,000.
Net income after claiming all deductions from gross income and adjusted gross income, such as IRA deductions, itemized deductions, or the standard deduction, and personal exemptions.