Under pre-Act law, for qualifying purchases of principal residences in the U.S. after Apr. 8, 2008 and before July 1, 2009, eligible first-time homebuyers may claim a refundable tax credit equal to the lesser of 10% of the purchase price of a principal residence or $7,500 ($3,750 for married individuals filing separately).

A taxpayer is considered a first-time homebuyer if he (or spouse, if married) had no present ownership interest in a principal residence in the U.S. during the 3-year period before the purchase of the home to which the credit applies.

Because only prior ownership in a principal residence is considered, it's possible for a taxpayer who already owns a vacation home to claim the new credit, if he otherwise qualifies. For example, a taxpayer whose principal residence for at least three years has been a rental apartment in the city, and who owns a seaside home, could claim the credit for the purchase of a new principal residence if his modified AGI doesn't exceed the phaseout levels discussed below.

Eligible first-time homebuyers who purchase a principal residence after Dec. 31, 2008, and before July 1, 2009, may elect to treat the purchase as made on Dec. 31, 2008.

The first-time homebuyer credit phases out for individual taxpayers with modified AGI between $75,000 and $95,000 ($150,000-$170,000 for joint filers) for the year of purchase.

The credit for new homebuyers is recaptured ratably over fifteen years, with no interest charge, beginning with the second tax year after the tax year in which the home is purchased. For each tax year of the 15-year recapture period, the credit is recaptured as an additional income tax amount equal to 6-2/3% of the amount of the credit.

This repayment obligation may be accelerated or forgiven under certain exceptions.

In other words, the credit for new homebuyers is the equivalent of a long-term interest-free loan from the government.