FIRST-TIME HOMEBUYER TAX CREDIT

What's a first time homebuyer? Somebody who has not owned a main home for three years before the purchase date of this new home.
First-time homebuyers can claim a refundable tax credit of 10% of the purchase price up to a maximum credit of $7,500 ($3,750 if married filing separately) for homes purchased after April 8, 2008, and before July 1, 2009. They can elect to treat a 2009 purchase as a 2008 purchase and claim the credit in 2008. The credit is phased out ratably over a $20,000 range for taxpayers with AGI over $75,000 ($150,000 if married filing jointly).
Though this is called a tax credit it actually functions as a 15-year interest-free loan, with 1/15th of credit recaptured annually beginning 2 years after year of purchase.
If you sell the house before the 15 years is up you must pay back the unpaid balance of the credit, up to the amount of the gain on the sale. If the sale is at a loss, the difference will be forgiven. The forgiven amounts should be reported as income and you will owe taxes on it.

DEDUCT REAL ESTATE TAXES EVEN IF YOU DON'T ITEMIZ

For 2008 only (one year only), the standard deduction is increased by the amount of your otherwise deductible real estate taxes with a maximum of $500, $1,000 if married filing jointly. That is you take your normal standard deduction and tack on an extra $500 or $1,000 if married filing jointly, providing you paid at least that much in real estate taxes. Now you don't count any real estate taxes that you've already deducted in computing AGI. For example if you've got a Schedule C and you're due to have some business real estate taxes you can't count those.

Mortgage Forgiveness Debt Relief Act

To be excluded from income the forgiven debt must be Qualified Principal Residence Indebtedness. The maximum amount you can treat as qualified principal residence indebtedness is $2 million ($1 million if MFS). It must be qualified acquisition indebtedness. Ordering rule - if only a part of the loan is qualified principal residence indebtedness, the exclusion for discharged qualified principal residence indebtedness applies only to the extent the amount discharged exceeds the amount of the loan (immediately before the discharge) that was not qualified principal residence indebtedness
Example -
Outstanding mortgage balance = $750,000
Refinanced for $850,000 (Additional $100,000 was used to buy car & pay credit card debt )
Lender forecloses, sells the house for $735,000, and cancels the remaining $115,000 of debt
Ordering Rule
$115,000 canceled debt
-$100,000 of nonqualified debt
$ 15,000 amount eligible for exclusion as QPRI
The remaining $100,000 must be included in income unless another exception or exclusion applies (e.g., insolvency).