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There are two programs, one for 2008 and one for 2009.
Now, the rules are slightly different, but speaking for 2008 at least, "they" don't send you a check, the sum is given as a tax credit, you deduct it from your tax bill, and such credit may be carried forward to future tax years. However, starting in the following tax year (2010 for the 2008 program), you start paying back the credit $500 per year for something like 15 years by adding it to your tax bill. So actually it is an interest-free loan through the tax system.
For the 2009 program, I believe that the tax credit mechanism is the same, with the added benefit that there is no pay-back feature, so a true free-and-clear tax credit.
I'm not sure what the catch was, but a few months ago I heard something on tv, which had to do with later on being taxed and how many people would be in for a surprise...sorry that I don't remember it so well, but the OP is very right to question this program and do some research.
Of course the real estate professionals won't tell you...just like a lady who was in front of us in a retail store and was getting a store credit card...she asked how much the interest rate was on the card....the answer fromt the store associate; "that is all in the fine print, that comes with your card"...translation; "you don't want to know since it is so high!, and I'm not going to tell you or you won't get your store cc, and I'm not getting my commission"
No, you don't have to pay taxes on it. Basically it's a reimbursable credit, meaning it goes against your tax liability. In the case of those who already filed our 2008 tax return, if you make an ammendment to account for the credit, the 8000 dollars will go against your tax liability, but since you already paid your taxes and/or got a refund, there is no liability to cover, which means the govt refunds you that money in the form of a check. No taxes will be paid on that money.
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