Members of the Maryland Association of Certified Public...

TAX ANSWERS

March 07, 1995

Members of the Maryland Association of Certified Public Accountants are answering readers' tax questions through April 15.

Q: I refinanced my mortgage in 1994 and incurred closing costs. Are those costs deductible from my income on my '94 return? Are all closing costs deductible?

A: Usually closing costs incurred when refinancing a home include points and recording fees. The points (pre-paid mortgage interest) are deductible, but the total amount must be spread evenly over the life of the new mortgage. The miscellaneous fees associated with refinancing generally are not deductible.

Q: I did not add to my 1993 total tax basis on Form 8606 (Nondeductible IRA contributions, IRA basis) when I sent my tax forms to the IRS last February. I received a sizable refund on March 11. I put $2,250 into IRAs on March 22 for the tax year 1993. I intend to add $2,250 to my 1993 total IRA basis on the 1994 Form 8606. Is this correct?

A: Because the IRS uses the previous year's Form 8606 to check the accuracy of the current year's form, an error made on one Form 8606 cannot be adjusted on the following year's form. To properly correct the error, you must complete a new 1993 Form 8606, showing the revision and attach it to Form 1040X (Amended Individual Income Tax Return), for 1993 and send both to the IRS center shown on the Form 1040X.

The above advice is for general purposes only and is not intended as legal, accounting or tax advice. Specific situations may vary.

To submit a question, call Sundial, The Sun's telephone information service, at (410) 783-1800. In Anne Arundel County call 268-7736, in Harford 836-5028, and in Carroll 848-0338. Using a touch-tone phone, enter 6225 after the greeting. Push 1 to submit a tax question; state the question in full. Push 2 to hear a tax tip.Selected questions will be answered in the Business section. No questions will be answered by phone.

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