$8,000 Home Purchase Tax-Credit Explained

Now that Congress has fixed the crucial flaw in last year's home-purchase tax credit, who will be able to make use of the new and improved version? And what about timing: How long do buyers have to find a house and close the deal to qualify?

These are just two of the flurry of questions surrounding the $8,000 housing credit for 2009 authorized in the sprawling, $789-billion stimulus plan.

In formulating the final terms of the bill, congressional negotiators added $500 to last year's $7,500 credit and eliminated the repayment requirement from the 2009 version.

Unfortunately, qualified buyers who closed in 2008 will not reap the benefits of the 2009 amendments. They're stuck with the old model, and will have to pay back the credit -- more correctly an interest-free loan from the government -- over the coming 15 years.

So, only buyers who close between Jan. 1 and Dec. 1 of this year may qualify for the new, no-repay credit. But they'll still have to pass most of the eligibility tests imposed under the 2008 program.

For example, they must be "first-time" buyers under the 2008 definition: Either you've never owned a house before, or you haven't owned or co-owned one during the three years preceding the date you close on your 2009 purchase.

Carefully planning the timing of your closing could be worth thousands of dollars to you. [More]

The final version of the home-purchase tax credit is an improvement over the 2008 $7,500 credit-you-pay-back-to-the-IRS (which feels more like a gift and clawback) but will not provide the stimulus of the original proposed Senate Bill that gave any buyer a $15,000 credit.

In high-cost areas such as Los Angeles, the bill will have a muted effect. But in the half of the country where homes are priced less than $175,000 (the median US home price in February 2009), the $8,000 credit amounts to a significant buyer incentive and could boost sales by qualified first-time buyers.