So many people have asked me how the federal $8,000 tax credit works. Basically it’s a once in a lifetime opportunity to buy your first home and get paid by the government.

Here are some highlights.

What is it? It’s a gift from the federal government to all you first time home buyers. It’s goal is  to help stimulate home sales and make first time home buying more affordable.

Who is a first time home buyer? If neither you nor your spouse have owned a residence in the last 3 years you qualify.

What kinds of properties are covered? As long as you buy a primary residence it can be a condo, townhome or detached single family home.

Are there time restrictions? Yes, you must close escrow on this residence before December 1, 2009. Most escrows take 30-60 days, so call me now. Let’s start looking at homes.

How much is the credit? The credit is for 10% of the purchase price up to $8,000.  So most any property you purchase in the Portland area would be for the maximum $8,000 credit.

Suppose I owe less than $8,000 in taxes, then what? The balance of the credit over what you owe in taxes is refunded to you…even if you owe no taxes and the full $8,000 is refunded to you. Sweet deal.

Is there an income limit to qualify? Yes. Buyers who are single can have income up to $75,000 and married people up to $150,000 can receive the maximum credit. If your income is higher you may still receive a portion of the credit.

Does the tax credit need to be repaid? Not if you live in the house for at least 3 years. Should you sell the house or stop living in it before 3 years is up, you’ll need to repay the credit.

Which is better, a tax credit or a tax deduction? The tax credit is better. It is subtracted from your tax owed. A tax deduction is an amount subtracted from your income before your tax is figured.