On July 30th, President Bush signed a major housing bill (H.R. 3221) into law. As part of the housing bill, Congress has created a new, temoprary tax credit to provide an incentive for first-time homebuyers. The $7500 credit will be available for the purchase of a principal residence on or after April 9th, 2008 and before July 1st, 2009.

How does it work?

Tax credits are special provisions that reduce income tax liability on a dollar to dollar basis. Credits are claimed on an individual's income tax return. In this case, Congress has created a tax credit for first-time homebuyers. The maximum credit amount of $7500. Thus, if after figuring out all the income items and exemptions and making all the required additions, subtractions, duductions and other items on a tax return a person had total tax libility of $8000, a $7500 credit would wipe out all but $500 of the tax due.

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