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Standard Mileage Rates for 2001

WASHINGTON-The Internal Revenue Service announced Thursday the optional standard mileage rates to use for 2001 in computing the deductible costs of operating an automobile for business, charitable, medical or moving expense purposes. 

The amounts for the various deductible costs for use of a car will be effective January 1, 2001. The standard mileage rate for the cost of operating a car is 34.5 cents a mile for all business miles driven. The rate for 2000 was 32.5 cents a mile. The primary reason for the mileage rate increases is due to the jump in gasoline prices.

For the other rates please read this news release in its entirety on the IRS Web site at:
http://ftp.fedworld.gov/pub/irs-news/ir-00-81.pdf

 

Special election for capital assets acquired in tax years beginning before January 1, 2001:

The current capital gains rates of 20% or 10% will continue to apply after December 31, 2000, provided the regular long-term holding period has been met (i.e. 12 months). However, it may be possible to qualify for a "special long-term capital gains rate" of either 18% or 8% (for individuals in a 15% tax bracket) if you have held the asset for more than 5 years.

Technical Note: It should be noted that the date the five-year holding period starts is different for individuals in a 15% tax bracket than for individuals in higher tax brackets.

The special 8% rate applies if you are in the 15% tax bracket and you hold the asset for more than 5 years, even if you acquired the asset before January 1, 2001.

If you are in 28% tax bracket or higher, the five-year holding period only applies to assets acquired after December 31, 2000. However, a special election may allow you to treat property acquired before December 31, 2000 as having been acquired on January 1, 2001.

In order to take make this election you must treat the asset as if it were sold on January 1, 2001, at its fair market value as of this date. Any income tax due on the gain from this hypothetical sale must be paid. However if a loss were to result, it is not recognized, that is you can't deduct the loss. The asset's new acquisition date would then become January 1, 2001.

 

The Sale of your Residence

Current tax law grants married couples up to a $500,000 capital gains tax exclusion for the sale of a principal residence where the owner has resided two of the last five years. Singles enjoy a $250,000 exclusion. Any profits in excess of the caps will be taxed at the new lower capital gains tax rate. Best of all, this principal residence exclusion can be reused over and over again.

Can I still "rollover" the proceeds from a home sale if I purchased a home of greater or equal value?

No. The "rollover" provision in current law which allowed an individual to avoid capital gains taxes by purchasing a home of equal or greater value has been repealed in favor of the exclusion.

What if I am over 55 years of age and I already used my one-time exclusion of $125,000? Can I take advantage of the new law?

Yes. Although the $125,000 exclusion for individuals over the age of 55 has been repealed, the new law allows any couple, regardless of age, to exclude from taxes up to $500,000 in capital gains or $250,000 for singles every two years for an unlimited number of transactions involving their principal residence.

Deductible costs of Long-Term Care Policies:

Premiums paid on many long-term care insurance policies qualify as a deductible medical expense (subject to limitations).  To qualify, the contract must only provide coverage for qualified long-term, care services and comply with all of the following requirements:

Be guaranteed renewable

Not provide for a cash surrender value or other money that can be paid, assigned, pledged or borrowed

Provide that refunds, other than refunds on the death of the insured or complete surrender or cancellation of the contract, and dividends under the contract must be used only to reduce future premiums or increase future benefits

Generally not pay or reimburse expenses incurred for services or items that would be covered by Medicare, except where Medicare is a secondary payer, or the contract makes per diem or other periodic payments without regard to reimbursement.

Deduction limits per person for qualified long-term care premiums for 2000 tax returns are: age 40 or under, $220; age 41 to 50, $410; age 51to 60, $820; age 61 to 70 $2,200; age 71 and older $2,750.

 

Ohio Wants to Start Collecting Use Tax From Individuals

Many individual taxpayers may be surprised when they receive their 2000 tax forms and realize that the Ohio Department of Taxation is looking to enforce a long-standing law asking residents to voluntarily pay "use tax" on purchases made via the Internet or catalogs from out-of-state. Ohio's "use tax" which has been on the books for 64 years has been paid routinely by businesses but this year the Department of Taxation wants individuals to ante up. The "use tax" applies to out-of-state purchases on which no sales tax has been paid.

According to the Columbus Dispatch, the Ohio Legislature has been told by Tax Commissioner Tom Zaino that, "As Internet sales grow and displace traditional bricks-and motor sales, Ohio will begin to see erosion of the actual tax base." State tax officials have estimated that Ohio is set to lose over $200 million dollars by 2002 as more shoppers have gone on-line to make their purchases. Tax officials have also stated that it will be very difficult to enforce the new policy change. However, the Tax Department has already started to contact out-of-state vendors for major purchases made by Ohio residents on high ticket items. The department also has begun sending out letters to consumers asking them to pay the "use tax" on out-of-state purchases.

U.S. Senator George Voinovich is pushing for federal legislation that would require all states to establish a uniform tax rate that would apply to all cities and counties and therefore make it easier for businesses on the Internet to calculate consumers use tax. Business would then just add the "use tax" to their purchase. Another bill that was held up in the US House of Representatives would have blocked any new taxes on the Internet for five years but it was derailed under heavily lobbying by retail merchants.

For now at least in Ohio, it is up to the taxpayer to calculate the "use tax" and submit payment in their annual state tax form. Any further questions please contact Fred Pausch at 614-764-2727 or e-mail fpausch@ohio-cpa.com.

 

 

 

 

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Last modified: May 08, 2001