• Applies to purchases that close after April 8, 2008, and before Dec. 1, 2009.
• Applies only to homes used as a taxpayer's principal residence.
• Reduces a taxpayer's tax bill or increases his or her refund, dollar for dollar.
• Is fully refundable, meaning the credit will be paid out to eligible taxpayers, even if they owe no tax or the credit is more than the tax owed.

For 2008 Home Purchases

The Housing and Economic Recovery Act of 2008 established a tax credit for first-time homebuyers that can be worth up to $7,500. For homes purchased between April 8, 2008, and December 31, 2008, the credit is similar to a no-interest loan and must be repaid in 15 equal, annual installments beginning with the 2010 income tax year.

For 2009 Home Purchases

The American Recovery and Reinvestment Act of 2009 and Worker, Homeownership and Business Assistance Act of 2009 have expanded the first-time homebuyer credit by increasing the credit amount to $8,000.  To qualify for this credit, you must enter a binding contract to purchase a home before May 1, 2010 and must close on the home before July 1, 2010.

For homes purchased between January 1, 2009 and July 1, 2010, the credit does not have to be paid back unless the home ceases to be the taxpayer's main residence within a three-year period following the purchase.  The taxpayer has the option of claiming the credit on either their 2009 or 2010 tax return. 

The new law also provides a "long-time resident" credit of up to $6,500 to others who do not qualify as "first-time homebuyers".  To qualify this way, a buyer must have owned and used the same home as a principal or primary residence for at least five consecutive years of the eight-year period ending on the date of purchase of a new home as a primary residence.

For home purchases in either year, the credit is 10 percent of the purchase price of the home, with a maximum available credit of $7,500 (for a home purchased in 2008) or $8,000 (if you purchased your home in 2009) for either a single taxpayer or a married couple filing a joint return, but only half of that amount for married persons filing separate returns. The full credit is available for homes costing $75,000 or more ($80,000 if purchased after Dec. 31, 2008, and before June 30, 2010).