NATCHEZ — Real estate has always been called a sound investment, but now first-time homebuyers are getting an even bigger payback.

The American Recovery and Reinvestment Act of 2009 authorized a tax credit of up to $8,000 for first time homebuyers.

The credit, which can be a applied to the 2009 income tax returns, is an effort by the Obama administration to spur home sales which have slowed dramatically during the national recession.

To be eligible for the tax credit, homebuyers must purchase the house between Jan. 1 and Dec. 1, and have an income of less than $75,000 for a single person or $150,000 for a married couple.

The tax credit is also applicable to purchases of newly built homes and existing homes.

“You definitely don’t want to over look this,” said Carr Hammond, an accountant at Silas Simmons LLP in Natchez. “It is basically free money from the government to encourage home sales.”

The new tax credit is a slight modification from the original homebuyers tax credit that was passed in July of 2008. The original plan required homeowners to pay the credit back over a period of time, but the new credit has no repayment clause, Hammond said.

A new homebuyer is defined as a person who has not owned a principal residence in the three years prior to the new purchase. For married taxpayers, the law applies to the homeownership history of both buyers.

But for anyone who can qualify, the tax credit should be taken advantage of.

A tax credit differs from a tax deduction in that a tax credit is a dollar for dollar match while the tax deduction is dependent upon the taxpayers income bracket.

A tax credit is applied to the amount of tax that is owed to the IRs, while a tax deduction is subtracted from the amount of income that is taxed.

“A tax credit is more valuable than a tax deduction,” Hammond said.

The process is as easy as filling out the appropriate form when it comes time to file federal income tax returns. Homebuyers will need to fill out IRS form 5405 to figure the amount of credit they are eligible for.

“All we need to know is when the house was purchased and how much you paid for it,” Hammond said. “For the IRS, in case of an audit, its important to have something to back that up, but we don’t need any specific paperwork.

The credit is for 10 percent of the home purchase amount up to $8,000. Home purchases for more than $80,000 receive an $8,000 credit.

A similar act was passed to encourage house purchases in Washington, D.C., but that credit was for only that area.

“This is the first time to have something like this nationwide,” Hammond said.

The most important factor to remember, Hammond said is that the home purchase must be complete by Dec. 1, 2009, to be eligible for the credit.

Frances Cothren, a mortgage loan originator at Britton and Koontz Bank, said she would advice homebuyers to begin the process at least 45 to 60 days before the deadline.

“You don’t want to miss it because there is a slight hold up in the loan process,” she said. “It’s a really good thing.”