If you bought or are buying your first home between January 1, 2008 and June 30, 2010, you will qualify for a refundable credit from the IRS.  There are two types of tax credit.  The non-refundable credits reduce your tax but only can reduce your tax to zero.  Refundable credits mean that once your tax is at zero, the rest of the credit will be mailed to you as a check.

For example, let’s say your taxes are $5000 this year and you have already paid $4500 towards those taxes in withholding from your paychecks.  So you would owe $500 to the IRS.  However, you bought your first home this year (2009) so when you file your taxes in 2010 for 2009, you claim the first time homebuyer credit.  The IRS would send you a refund check for $7500.  They would take $500 from the credit to pay the balance of the taxes you owed to them.  The rest would be refunded to you.

Now there are some differences in the tax credits available for first-time homebuyers.   If you bought between January 1, 2008 and December 31, 2008, the credit is $7500 and must be repaid over 15 years starting the second year after receiving the credit at $500 per year.  If you bought between January 1, 2009 and June 30, 2010, the credit is $8000 and doesn’t have to be repaid if you live in that home you bought for 3 or more years.  If you bought between January 1, 2009 and November 6, 2009, the credit is $8000 and you can e-file to claim the credit.  If you bought your first home after November 7, 2009 but before June 30, 2010, you cannot e-file your return to claim the $8000 credit as the IRS now requires you to attach proof of home purchase to your return.

If you have filed taxes for 2008 but bought your first home after you filed, you can file an amended return this year to claim the credit.  You don’t have to wait to file your tax return for 2009.  This is a great benefit for first time buyers, defined by the IRS as folks who haven’t owned a home for the three years prior to closing on their new home.  Good luck in buying that first great home!!