You may have read or heard that 12 million American homeowners are likely to have a mind-bending new federal tax form to contend with next April.

You may also have heard that it comes with four pages of fine-print instructions and gives five confusing ways to figure out what you thought you already knew, such as the size of your home mortgage.

Well, what you heard was mainly true. Internal Revenue Form 8598 -- Computation of Deductible Home Mortgage Interest -- is going to be a bad dream for a lot of people. But with some advance warning of its details, it should be survivable. In fact, if you take just a few preparatory steps during the coming months, the new tax form will inflict only minimal pain.

Here's a quick look ahead at what you're going to face, and what you'll need in hand by tax time. It's based on an analysis of the draft form released by the IRS last week. The final version, due in October, shouldn't be much different.

Like so many other real estate-related hassles this year, Form 8598 is a product of the Tax Reform Act of 1986. It sets up a series of hoops to determine whether you qualify for full or only partial deductibility of the interest on your mortgage and equity loans. You have no worries about Form 8598 if: You financed your first or second home with a mortgage prior to Aug. 17, 1986;

You have not refinanced or taken out a home-equity loan of any type since that date;

Your mortgage loan proceeds, including those from first or second mortgages after Aug. 16, 1986, have been used solely to purchase your home.

If you depart from those criteria in any respect, you probably are going to have to fill out Form 8598 next year. The IRS estimates that upwards of 13 million Americans will take out equity-loan second mortgages or deeds of trust this year. Millions of others will have refinanced their mortgages and used portions of the proceeds to finance business ventures or pay for new cars, vacations or other personal activities.

What do you have to disclose to IRS if you come under the Form 8598 net? For warmups, the IRS wants to know the "average balance for 1987 of each mortgage on your home. ..." What's an average balance? The concept is fairly straightforward: It's the average dollar amount of principal debt you have outstanding on your home during the course of tax year 1987. Obviously that figure is likely to be higher at the start of the year than it is at the end of the year for most home owners with fixed-payment, amortizing loans. The same should be true for variable-rate mortgages, as long as they don't have negative amortization (equity buildup) features.

Simple though the concept is, the IRS gives you no less than five ways to compute it, including "average daily balance," "interest paid divided by interest rate" and the "average monthly balance" method.

After adding up the average balance for each loan on your home -- including revolving equity-credit lines -- you need to calculate what your home is worth in tax terms. That means its original cost plus the original cost of all capital improvements you've made since the purchase. Depending on how you keep records and how long you've owned your home, this could either be a severe personal test at the wrong time of year, or a breeze.

For many homeowners, it won't be a breeze. Which raises the first two practical points for the millions of people who are going to stare at Form 8598 for the first time next year: Why not start pulling together some of the basic records you're going to need, right now, rather than fuming over missing check stubs and loan files next spring? You're going to need:

Documentation showing what you paid for the house, if you bought it, or other evidence showing your original tax basis in the property if you acquired it through a gift or inheritance.

Documentation showing the cost of all capital improvements you made to the house through 1987. (The more you can document, the better.)

Without these basics ready in advance, you won't be able to move onto the second phase of the IRS's tricky new mortgage-interest deductions game. The name of that phase is: Do you get to write off everything you thought you could?

NEXT WEEK: Getting deductions that are legally yours.