First-Time Home Buyer Tax Credit

In an attempt to get the housing market back on track, President Obama signed into law a new tax credit for first-time homebuyers. This most recent incarnation of housing stimulus plans is much more attractive than last year’s version. Here are a few things you and your friends need to know about this new $8000 first time homebuyer credit:

1. Free Money for First-time homebuyers: The credit is equivalent to 10 percent of the purchase price of the home, butthe creditiscapped at $8000. It applies only to first-time home buyers and principal residences. But unlike last year's $7,500 home buyer tax credit, this credit does not have to be repaid.

2. First-time homebuyers aren’t always first-time homebuyers: For the purpose of this new tax credit, a "first-time home buyer" is someone who hasn't owned a principal residence for three years before buying a house.That means if you've owned a vacation home--but not a principal residence--within the past three years, you would still qualify for the credit. Or if you haven't owned a principal residence within 3 years, you are also eligible.

3. 2009 buyers only: Only those who purchase a home on or after January 1 and before December 1, 2009 are eligible for the credit.

4. Income limits: The tax credit is subject to income limits. Individual buyers need an adjusted gross income of $75,000 or less to qualify for the full credit. Married couples can’t make more than $150,000. Those earning more than these thresholds may be eligible for reduced credits.

5. Refundable: This tax credit is "refundable". In tax jargon, refundable means qualified buyers can take advantage of the credit even if they don't pay enough taxes to cover the credit (i.e. free money).

6. Recapture: Buyers have to own the home for at least three years to keep the money. If they sell the home before then, they will have to return the credit to the government. However, there are certain circumstances, such as divorce or death.