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First-time homebuyers can expect a big tax break this year, thanks to the economic stimulus act signed by President Obama on February 17th.

As part of the American Recovery and Reinvestment Act, qualified first-time homebuyers will receive a tax credit of up to $8,000 if they buy a principal residence before December 1st, 2009.

This new tax credit replaces the $7,500 credit enacted by the Bush administration in 2008, and unlike that earlier tax credit, this new incentive to first-time homebuyers does not need to be repaid.

Who is eligible to claim the credit? Any first-time homebuyer purchasing a home after January 1st, 2009 and before December 1st is eligible.

And that first-time homebuyer? That’s anyone who has not owned a principal residence for three years. For married couples, that applies to both spouses.

The amount of the credit is equal to 10 percent of the home’s purchase price, up to a maximum of $8,000.

There are income restrictions to be able to claim the tax credit, however. Single buyers need to have a modified adjusted gross income of $75,000 or less a year to claim the full credit. Married couples need to make $150,000 or less. Those earning more may still be entitled to reduced credits.

This new credit is also refundable, which means that qualified buyers can take advantage if it even if their tax liability is less than the amount of the credit. In those cases, the excess amount will be refunded directly to the taxpayer.

The one caveat? The new homeowner must own the home for at least three years. If a buyer sells the home within the first three years, they will have to return the credit.

Still, the tax credit is expected to bring new homebuyers by the hundreds of thousands into the housing market. This influx of new buyers should lead to a cascading effect, as each new sale typically results in two additional “trade up” transactions.

Housing is the backbone of the nation’s economy, and is the key to revitalizing our economy. With this financial incentive creating more and more home sales, we should see much-needed stability in home prices – which will help reduce the number of foreclosures and other homes for sale, and move the country closer to economic recovery.

Harlan and Associates provides real estate closing and settlement services for home buyers, sellers, investors, and lenders. The firm, founded in 2005, concentrates its practice in real estate matters and has represented clients throughout Atlanta and the State of Georgia. We'd love to be your closing attorneys. Want to know more? Contact us and we'll be happy to discuss how Harlan and Associates can be of service to you!