It's been widely publicized that the government is offering a tax credit for first time home buyers. What isn't as well known are the rules of eligibility, and how the credit works. Here are a few high points:

  • As a tax credit, it directly reduces your tax liability. For example, if you would normally have owed $2,000 in taxes, the $8.000 credit changes this to a $6.000 refund.
  • The amount of the credit is 10% of the purchase price, up to $8,000.
  • A single person must make less than $75,000 to qualify for the full credit. Married couples must make less than $150,000. If you earn more than this the credit begins to phase out at those thresholds and is completely phased out at $95,000 (single) or $170,000 (married)
  • In mid-2008 a $7,500 credit was announced by Congress. Although it was marketed as a credit, it was actually an interest-free loan, payable over 15 years. This new credit never needs to be repaid.
  • You must purchase your home between Jan 1 and Dec 31, 2009. The clock is ticking!
  • A newly constructed home qualifies. If you act fast, this route also qualifies you for the $6,000 credit (Utah only). See this post for more info.

For more detailed information go here.
The tax form required to get the credit is IRS Form 5405. The IRS also has some insight into how the credit works, found here.