The American Recovery & Reinvestment Tax Act of 2009, passed in February and revised in November, includes a first time homebuyer tax credit. Eligible buyers can claim a federal tax credit of 10 percent of their property’s purchase price to a maximum of $8,000.  Trade up buyers can claim a credit of up to $6,500.

Homebuyers can claim the tax credit on their federal income-tax returns.  Buyers who purchase their home in 2009 can even take the credit against their 2008 taxes by filing an amended 2008 return to claim the credit, or they can wait until they file their 2009 taxes.

This credit is designed to stimulate demand for housing by giving first time buyers an incentive to buy now. Since increased demand will also stabilize home prices, this tax credit can benefit the whole housing market.

To be eligible for the credit, qualified buyers must contract to buy their home by April 30, 2010 and close by June 30, 2010.

For buyers with adjusted gross incomes of more than $125,000 if single or $225,000 if married and filing taxes jointly, the credit starts to phase out. The credit is not available for homebuyers with adjusted gross incomes of more than $145,000 for single buyers or more than $245,000 for married homebuyers who are filing jointly.

The credit does not have to be repaid unless the home is resold or otherwise ceases to be the taxpayer's principal residence within 36 months of purchase.

All segments of the housing market could benefit from this revised tax credit. An entry-level homebuyer who could not purchase a first home without the tax credit, can purchase a starter home from a family who could now sell their home and move up to a more expensive property. The trade up family can offset some of their cost with their tax credit.