With all of the tax incentives that homebuyers can currently enjoy, now is the time to consider purchasing your first home. The IRS has made owning more attractive than ever with a number of incentives. Upon purchasing a home, first-time homebuyers and longtime residents can receive a tax credit. The mortgage interest deduction provides continuing tax benefits in future years. Years from now, if you decide to sell your home, the IRS allows an exclusion of a certain amount of the gain from taxable income, allowing your home to provide one final tax benefit.

The first-time homebuyer credit is relatively new, and also has changed recently. A major change is that the credit has been extended through April 30, 2010. To qualify, a taxpayer must purchase the home prior to May 1, 2010 and have not owned a principal residence during the three-year period prior to the purchase (for married taxpayers, the law tests the homeownership history of both the homebuyer and his/her spouse). There is an exception; if a written binding contract is in place by April 30, 2010 the deadline to close is extended to June 30, 2010. Another exception relates to taxpayers who serve on qualified official extended duty service outside the U.S. for at least 90 days from Dec. 31, 2008 through April 30, 2010. For these individuals, the credit is extended through April 30, 2011 (June 30, 2011 if a binding contract is in place at April 30, 2011). Another interesting point is that the credit may be claimed for the preceding year (for example, if you purchase a home on Jan. 15, 2010, you can choose to claim the credit on your 2009 return).

In most cases, first-time homebuyers will be able to take a credit of 10 percent of the purchase price of the home (up to a maximum of $8,000) against their income tax liability. The newly passed version of the credit allows a credit for longtime residents (persons who have owned and used the same home as their principal residence for at least five consecutive years within the eight years preceding the purchase of the new home). The credit for longtime residence is limited to $6,500.

To take advantage of the credit you must be a U.S. resident and at least 18 years old at the time of purchase to qualify for the credit. The credit is disallowed for any home costing more than $800,000.

The tax benefits of homeownership don't end there. If you itemize deductions on your return, then interest on a loan of up to $1 million incurred to purchase the home is generally deductible on your tax return. In addition, mortgage insurance premiums are treated as interest for the purpose of this deduction (although this is phased out for taxpayers with an adjusted gross income in excess of $100,000).

Once you sell your home, the IRS permits you to exclude up to $250,000 of the gain from gross income ($500,000 for married taxpayers filing jointly), subject to certain rules. You must have used the home as your principal residence for at least two of the five years preceding the sale. There is an exception for taxpayers who move due to health, a change in place of employment, or unforeseen circumstances. In these cases, the IRS allows you to exclude a proportionate amount of the gain from the sale.