An example would be the purchase of a $90,000 house.  10% of $90,000 equals $9,000.  The tax credit cannot exceed $8,000, therefore the amount of credit the purchaser receives on his/her 2009 tax return is $8,000.  Lets say you work a regular 40 hour week and taxes are withheld from your pay check each pay day.  At the end of the year you do not owe taxes nor will you receive a tax refund.  The $8,000 tax credit is added to the amount of tax withholding that was deducted during the previous year and in this example the tax payer would receive an $8,000 tax refund!

By the way, did I mention that this tax credit is a gift for first time home buyers and not a loan…you don’t have to pay it back!!  That is as long as you stay in the house for a minimum of 3 years.

A $90,000 house can be purchased on an FHA mortgage for about $8,000.  So, if you qualify as a first time home buyer, you can buy a house for nothing or near to nothing.  This is just another reason why now is one of the best times for first time home buyers.  Please note that I am not a tax preparer and this information should be confirmed by your tax professional.