The following items highlight a number of administrative and tax law changes for 2001. They are discussed in more detail throughout the publication. More information on these and other changes can be found in Publication 553, Highlights of 2001 Tax Changes.

Depreciation limits on business cars. The total section 179 deduction and depreciation you can take on a car you use in your business and first place in service in 2001 is $3,060. Special rules apply to certain clean-fuel vehicles. See chapter 8.

Child tax credit. For 2001, the child tax credit was increased. You may be able to take a credit of up to $600 for each qualifying child. See your income tax package for details.

Earned income credit. The maximum earned income credit has been increased for 2001. To claim the credit, you must have earned income (including net earnings from self-employment) and modified adjusted gross income of less than $32,121 and meet certain other requirements. For more information, including what counts as earned income, see Publication 596, Earned Income Credit (EIC).

Lower capital gain tax rate. The capital gain tax rates for "qualified 5-year gain" have been lowered. See chapter 10.

Section 179 deduction. For 2001 and 2002, the total cost you can elect to deduct under section 179 of the Internal Revenue Code is increased to $24,000. See chapter 8.

Self-employed health insurance deduction. The part of your self-employed health insurance premiums you can deduct as an adjustment to income is 60% for 2001. See chapter 5.

Standard mileage rate. The standard mileage rate for the cost of operating your car, van, pickup, or panel truck in 2001 is 34 1/2 cents a mile for all business miles. See chapter 5.

Tax rates and maximum net earnings for self-employment tax. The maximum net self-employment earnings subject to the social security part (12.4%) of the self-employment tax increased to $80,400 for 2001. There is no maximum limit on earnings subject to the Medicare part (2.9%). See chapter 15.

Postponed tax deadlines in disaster areas. The IRS may postpone for up to 120 days certain tax deadlines of taxpayers who are affected by a Presidentially declared disaster. The tax deadlines the IRS may postpone include those for filing income and employment tax returns, paying income and employment taxes, and making contributions to a traditional IRA or Roth IRA. See chapter 13.

Marginal production of oil and gas. The suspension of the taxable income limit on percentage depletion from the marginal production of oil and natural gas that was scheduled to expire for tax years beginning after 1999 has been extended to tax years beginning before 2002. For more information on marginal production, see section 613A(c) of the Internal Revenue Code.

Accrual basis taxpayers. For sales occurring after December 16, 1999, accrual basis taxpayers were required to report installment sales under an accrual method of accounting. The Installment Tax Correction Act of December 28, 2000, repealed that requirement.

If you entered into an installment sale after December 16, 1999, and reported it under an accrual method on your income tax return filed by April 16, 2001, you can revoke your effective election not to use the installment method. To revoke the election, you must file an amended return for the year of the installment sale (and any other year affected by the sale) reporting the gain on the installment method. See chapter 12 for information on installment sales.

Backup withholding. For amounts paid after December 31, 2001, the backup withholding rate is decreased to 30%. See chapter 2.

Third party designee. Beginning with your tax return for 2001, you can check the "Yes" box in the "Third Party Designee" area of your return to authorize the IRS to discuss your return with a friend, family member, or any other person you choose. This allows the IRS to call the person you identified as your designee to ask any questions that may arise during the processing of your return. It also allows your designee to perform certain actions. See your income tax package for details.

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