Bought a house and got a 1099-R, I thought we wouldn't need to pay penalty if 10k was used to purchase house for first time

If you took at distribution from an IRA to use to purchase your first home, then you can exclude up to $10,000 of that distribution from the early distribution penalty of 10%.  However, you will still be subject to income tax on the distribution.  

After you have entered the Form 1099-R, there will be a series of follow-up questions.  One of these will be a page of possible exceptions to the early distribution penalty.  This is where you will enter the $10,000 (or less) amount to reduce the early distribution penalty.

If your distribution was from a retirement plan and not an IRA, then the exception will not apply.

See the following TurboTax help article for more information:

Are there exceptions to the early distribution penalty on an IRA?