UPDATE NOV. 5, 2009: Read this for information about the newly extended and expanded $8,000 home buyer tax credit

As part of the recent housing stimulus package enacted by Congress at the end of July, there is now a $7500 tax credit available for first time homebuyers.  This is a great incentive but is only available for a purchase occuring between April 9, 2008 and June 30, 2009.

Since it is a tax credit (not a tax "deduction"), it is a substantial reduction of a buyer's tax bill.  It is basically like getting an additional $7500 refund from your taxes.

One caveat, though, is that it is actually more of an interest free loan than a straight tax credit.  The $7500 is repayable by the buyer to the government over 15 years at about $500 per year.  Still, this should help a lot of buyers in terms of cash flow in the first year or two after purchase.  After coming out of pocket for the down payment and closing costs, it is nice to get an extra $7500 off your tax bill.  Of course, there are income limits as well and is phased out for those above $75,000 in income (single) and $150,000 (married).

 For more details, please read the F.A.Q. below:

Click here for many common questions and answers about the homebuyer tax credit