Page 7 - Supplement to Income Tax TY2021

Recent Tax Developments*

Provisions with a less-than-one-year extension. • For driving as a charitable volunteer, 14 cents per
Various disaster relief rules apply to those impacted by mile (the rate is fixed by statute).
federal disasters declared through February 25, 2021.
If you use a standard mileage rate, keep records of
These include: your mileage as well as records of parking fees and tolls,
• Taking a qualified distribution from a retirement
plan or IRA up to $100,000. The distribution is which may be added to the applicable 56, 16, or 14
exempt from the 10% early distribution penalty. cents-per-mile rate in figuring your deduction for 2021.
The distribution can be reported over three years Standard mileage rate for business vehicles. Keep
and be recontributed to the same or other plan or
IRA within three years. in mind that to use the IRS standard mileage rate
• Taking a qualified loan up to account balance for a business vehicle in lieu of actual expenses (and
(a maximum of $100,000). There is a delay in depreciation if you own the vehicle), you have to use the
beginning required repayments. IRS allowance in the first year you place the vehicle in
• Deducting a net disaster loss for personal-use service to use it in later years. For example, if you bought
property (e.g., a home) not covered by insurance. a truck for your business in 2020, you must decide
The deduction can be claimed as an additional whether to use the 2020 IRS rate of 57.5 cents per mile
standard deduction by those who do not itemize.
The loss must be reduced by $500, but the on your 2020 Form 1040 or 1040-SR, or to claim actual
10%-of-AGI floor does not apply. expenses plus Section 179 expensing, bonus depreciation,
or modified accelerated cost recovery system (MACRS)
Further details on these disaster relief provisions are depreciation if this will give you a bigger deduction. If
in the “Updates, Additions and Corrections” section you do not use the 57.5 cents IRS rate for 2020, you
of this Supplement; see pages 17–18 below. will not be allowed to use the 56-cents-per-mile rate for

Provisions allowed to expire (not extended). The that vehicle on your 2021 tax return or to use the then-
above-the-line deduction for tuition and fees has not applicable IRS rate for years after 2021.
been extended. It may be claimed on 2020 returns. In addition, if you maintain a fleet of vehicles of
After 2020, education tax credits are still a viable way to more than four vehicles that you use simultaneously,
reduce out-of-pocket costs for education, even though the standard mileage rate cannot be used for any of
the tuition and fees deduction no longer applies; the vehicles.
see page 14 of this Supplement below for the 2021 For each mile that you claim the standard mileage
American opportunity and lifetime learning credits. rate for a business vehicle that you own (rather than
Another provision that sunsetted at the send of 2020 lease), you must reduce your basis in the vehicle by a
is the ability to defer gain on the sale of empowerment deemed depreciation rate set by the IRS. For 2021, the
zone assets by rolling them over. deemed depreciation rate will be 26 cents per mile (a
penny less than in 2020).
IRS Mileage Rates for 2021 Employee reimbursements for 2021 mileage. Employees

(pages 356, 415–416, 470–471, 747–748) who use their vehicles for work and who are reimbursed
under an “accountable” plan in 2021 will not be
You may be able to use the IRS’s standard mileage rate taxed on reimbursements up to the 56-cents-per-mile
instead of deducting actual expenses when using your standard business rate.
car for business, medical, certain moving, or charitable
purposes. For 2021, the standard mileage rates are:
• For business driving, 56 cents per mile (down Gain on Opportunity Zone Assets
from 57.5 cents). (pages 120)
• For medical expenses, 16 cents per mile (down
from 17 cents). The same rate applies to moving Generally, gain on the sale of assets can be deferred by
expenses for certain military personnel; no other investing them in a qualified opportunity fund (QOF)
taxpayers can claim a moving expense deduction. within 180 days. Deferral continues until the earlier

Supplement to J.K. Lasser’s Your Income Tax 2021 | 5