What mistakes should you avoid as you prepare your 2002 tax return?
Mortgage points. If you refinanced your mortgage last year, as many people did, go over your settlement papers. Points paid to refinance a mortgage can be deducted over the life of the loan but points paid on a loan used for home improvements may be deducted right away.
Say you refinanced an outstanding $150,000 loan with a new, $200,000, 15-year loan last year, paying $4,000 in points. The extra $50,000 was used to build a home addition. Because 25 percent of the loan was used for home improvements, 25 percent of the points you paid ($1,000) can be deducted in 2002. The other $3,000 you paid in points can be deducted over the 180-month term of the loan.
Match game. Keep in mind that the IRS devotes a tremendous amount of effort to document matching. Whatever income is reflected on all the W-2 and 1099 statements you receive for 2002, make sure that income is reflected on your tax return. That includes any dividends you reinvested, too. Discrepancies are likely to draw the attention of the IRS.
If you married and changed your name last year, be sure you report the change to the Social Security Administration. Otherwise, your new name and old Social Security won’t match and the IRS will think you haven’t filed a tax return.
Count carryforwards. If you were unable to deduct all your capital losses in a previous year, see if you can use them to offset any net capital gains from 2002. Moreover, up to $3,000 worth of capital losses (including unused losses from prior years) can be deducted against ordinary income.
