Small Business Capital Formation Act of 1987

Small Business Capital Formation Act of 1987 - Repeals provisions of the Tax Reform Act of 1986 which eliminated the exclusion for long-term capital gains of individuals.

Amends the Internal Revenue Code to permit any noncorporate taxpayer an income tax deduction of 25 percent of the gain from an investment in the stock of a small business whose outstanding stock is valued at less than $10,000,000. Limits such deduction to a taxpayer who: (1) is the initial acquirer of the particular stock; and (2) holds such stock for at least four years.

Limits the maximum marginal tax rate on the income for such investments to 21 percent for individual taxpayers.

Adds the amount of the deduction for capital gain from such investments as a tax preference item for purposes of determining alternative minimum tax liability.