Automotive Economic Recovery Tax Act of 1981

Automotive Economic Recovery Tax Act of 1981 - Amends the Internal Revenue Code to allow individual taxpayers a nonrefundable income tax credit for the purchase of new passenger automobiles which were manufactured by companies whose average fuel economy rating for such automobiles in model year 1979 equaled or exceeded 120 percent of their rating for model year 1974. Limits the amount of such credit to $500. Allows an income tax credit for 50 percent of the interest paid on a loan used for such purchase. Limits such credit to $400. Requires the taxpayer to elect to take such credit in lieu of an interest deduction.

Permits taxpayers to elect to reduce useful life by 25 percent for depreciation of certain automobile manufacturing equipment. Allows taxpayers to treat the cost of automobile manufacturing equipment as a deductible business expense if such equipment has a useful life of less than three years.

Extends from three to seven years the carryback period for the net operating loss deduction and the investment tax credit for manufacturers of automobiles, automobile parts, and automobile manufacturing equipment.