One of the key stimulants in the Bush administration budget is a package of tax breaks that could help the local real estate industry and Maryland's economy. First-time homebuyers -- people who haven't owned a home for three years -- could get up to a $5,000 tax credit spread over two years for homes purchased between Feb. 1 and next Jan. 1. First-time buyers could also withdraw up to $10,000 from Individual Retirement Accounts without any penalty. There's also a plum for people who sell at a loss in today's depressed market. Provided the loss is more than 10 percent of the owner's income, the difference would be deductible from 1992 income taxes.
While not a long-lasting economic fix, these tax breaks could prod the real estate market. Because the tax credit, unlike a deduction, shaves dollars directly from taxes owed, it should stimulate homebuying. This, combined with lower mortgage rates and home prices could be the magic bullet real estate agents have been praying for. Over the past year, the number of homes on the market in the Baltimore region has swelled by 60 percent to 11,712. Whether the tax credits materialize hinges on Congress, but many buyers last month delayed purchases until after Feb. 1 in hopes of receiving this tax break.
The package is a plus for an industry desperate for relief. Local Realtors are hoping for a replay of the surge in demand generated by a $2,000 first-time-buyer tax break in 1975. The IRA penalty waiver, another pump primer, is expected to help people who can afford a mortgage but can't save enough to meet Maryland's sky-high closing costs. The average home in the Baltimore metropolitan region sells for about $124,000; closing costs average 6 percent to 8 percent of the purchase price.
The tax write-off for losses offers an incentive to sell for those hurt by the slide in real estate prices. But this element of the tax break won't be nearly as beneficial as the others.
Still, these tax breaks could go a long way toward helping the region's ailing economy. Sharp declines in real estate revenues have hurt local governments badly. Anything that helps reverse this slide is welcome.