You wouldn't take a long trip without a road map. Here's one to help you search for deductions in the tax code
By Leonard Wiener
If you are among the 70 million Americans who haven't yet filed their tax returns--just over half of all taxpayers--the IRS may have a check waiting for you. Because people typically withhold too much tax from their paychecks, 7 of 10 filers in recent years have been getting refunds. The average amount so far this year is $2,091, up almost 12 percent from last year, reflecting in part increased credits. For all of you stragglers, here are some just-in-time tips as April 15 nears. If you have already filed but find that you missed a break, you can still amend your return by using Form 1040X.
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Rebate redux
As most taxpayers already have received last year's tax rebate of up to $600, a line near the bottom of 2001 tax forms--labeled "rate reduction credit"--may be confusing. This line is reserved for those who didn't get a rebate last year or who got less than they deserved. You can ignore the line if you are filing as a single for 2001 and got $300 last year, as a head of household and got $500, or are filing jointly with your spouse and got your $600. If you received less, it may pay to slog through the instructions work sheet to see if you've been shortchanged. Among those who didn't get a rebate but may be due one are students and others who were a dependent in 2000 but not in 2001. If you received more than you should have, you're in luck; the IRS says you do not have to give back the excess. And to settle another confusing matter: The rebates are not taxable.
Refinancing a mortgage
A rush to refinance mortgages last year is forcing more people to wrestle with deducting points--the lump-sum interest often required upfront by lenders. When you receive a mortgage to buy a home, points are generally deductible on that year's return. But on a refinanced mortgage, points must be deducted gradually over the life of the loan; $2,400 in points on a 30-year loan means you deduct $80 a year. But here are twists to salvage a bigger write-off:
If the refinanced loan was for more than the existing balance and the excess was used to remodel or expand your home, points on that portion of the new loan are deductible immediately.
People who previously refinanced and were deducting points bit by bit can claim all the remaining deductions now if they sold their home last year or again refinanced.
Selling your stock and having it, too
At first glance it seems crazy. Make believe you sold some profitable stock last year to incur an imaginary capital gain that is taxed for 2001. In fact, that's a new tactic that can cut future tax. If you buy shares now and hold them for five years, the top tax on their sale will be 18 percent, a discount from the 20 percent rate for assets held longer than a year. Here's the trick: Following instructions on the 1040's Schedule D, you report a fictional sale and repurchase of shares as of Jan. 2, 2001, and pay regular capital-gains tax on any appreciation as of that date. The payoff is that appreciation beyond January 2001 will be taxed at 18 percent, if you hold on at least five years. That may seem puny, but it can pay off if the gain as of January 2001 is small and the shares rise in the future.
