Tax Reform Act

Tax Reform Act - Title I: Amendments Primarily Affecting Individuals - Provides that the minimum tax for tax preferences is altered by (1) reducing the exemption to $10,000; (2) imposing a graduated tax rate on additional amounts of tax preferences; and (3) eliminating deferral of the minimum tax.

Imposes a tax for the purposes of computing taxable income, on the appreciation of capital assets transferred at death or by gift. Excludes from this tax specified property passing to spouses and charities.

Reduces the amount of the exemption for interest paid by an individual borrowing for large investments from $25,000 to $10,000. Expands the definition of "investment interest" to include interest paid on passive oil, gas, mineral or real estate investments.

Repeals the present law which allows U.S. citizens who live abroad to exclude from taxable income $25,000 (if they are bona fide residents of a foreign country) or $20,000 (if they live abroad for at least 17 out of 18 months).

Title II: Amendments Primarily Affecting Corporations - Restricts the investment tax credit for investments in machinery and equipment to allow a credit only for net increases in investment.

Repeals rapid amortization for (1) rehabilitation of low-income rental housing, (2) emergency facilities, (3) pollution control facilities, (4) specified railroad rolling stock, (5) specified coal mine safety equipment, and (6) specified expenditures for on-the-job training and child care facilities.

Terminates specified provisions governing bad debt reserves of financial institutions. Repeals the deduction allowed for trade corporations operating in Western Hemisphere countries other than the United States.

Requires United States shareholders of controlled foreign corporations to include in gross income their pro rata share of the corporations's earnings. Terminates the provisions for domestic international sales corporations which allow such export corporations to defer a percentage of their income.

Increases the corporate tax rate on long-term capital gains from 30 percent to 35 percent.

Title III: Amendments Affecting Individuals and Corporations - Sets forth tax rules for investments in real property, including: (1) restricts depreciation to the straight line method and to the owner's actual equity; (2) requires capitalization of interest and taxes incurred on undeveloped real estate held for investment and during construction ; (3) recaptures in full at the time of sale the excess depreciation taken on real property; (4) includes in taxable income specified proceeds from a mortgage loan which exceeds the depreciated cost of the real property; and (5) provides for review of the useful lives of buildings.

Requires that intangible drilling, mine exploration, and development costs, be capitalized. Provides for the recapture of past deductions when such mineral property is sold.

Reduces the allowable deductions of a taxpayer engaged in farming to less than a specified sum of gross income and special deductions. Sets forth special rules for farming deductions in the case of married individuals and members of controlled groups of corporations. Increases farm loss deductions to include (1) taxes; (2) interest; (3) losses from fire or storm; (4) abandonment or theft; (5) drought and (6) losses from sales, exchanges and involuntary conversions.

Reduces percentage depletion rates for mines, wells, and other natural deposits. Terminates the exemption from taxation of specified income earned in possessions of the United States.

Provides that no foreign corporation shall be treated as a less developed country corporation for any taxable year which begins after the date of enactment of this Act.

Title IV: Estate and Gift Tax Amendments - Sets forth new rates for the imposition of taxes on the transfer of a taxable estate by decedents, residents and citizens of the United States. Prescribes new rate schedules for gift taxation.

Imposes a tax, equal to three-fifths of the normal estate tax, on the transfer of that portion of the taxable estate of a decedent which consists of a generation-skipping transfer. Provides for the imposition of a tax on transfers in trust. States that such taxes may be imposed on more than one occasion. Grants exceptions to the skipped-generation transfer taxation in specified situations.

Title V: State and Local Bonds - Allows state and local governments, at their option, to issue bonds which pay taxable interest. Provides that the federal government shall pay 50 percent of the interest cost of state and local governments elect to make interest on their bonds taxable.