Tax Reduction Act of 1981

Tax Reduction Act of 1981 - Title I: Amends the Internal Revenue Code to allow employers, employees, and self-employed individuals an income tax credit equal to ten percent of the amount of social security taxes paid by such individuals in 1981 or 1982.

Increases the income tax personal exemption from $1,000 to $1,500. Increases the dollar limitations on the exclusion of dividends and interest income received by individuals. Amends the Crude Oil Windfall Profit Tax Act of 1980 to repeal the termination date for such exclusion.

Allows married individuals filing a joint return an income tax deduction from gross income of ten percent of the lesser of $30,000 or the earned income of the lower income spouse. Specifies that the rate of such deduction will be five percent, instead of ten, in taxable year 1981.

Title II: Business Tax Reduction - Revises the method for determining useful lives of business assets for purposes of computing allowable depreciation deductions. Replaces the asset depreciation range (ADR) method with a schedule of capital cost recovery periods for three classes of business property.

Establishes capital cost recovery periods for the following classes of business property: (1) buildings and their structural components, ten years; (2) tangible property, five years; and (3) automobiles, taxis, and light-duty trucks (up to $100,000), three years. Permits calculation of the investment tax credit for such property without regard to the useful life of the property. Requires the recapture of depreciation amounts and investment tax credit amounts applicable to assets which are sold or otherwise disposed of prior to the expiration of the capital cost recovery period. Permits a taxpayer to deduct less than the full allowance for capital cost recovery in any taxable year. Permits a carryover to succeeding taxable years of any unused depreciation amounts.

Disqualifies capital cost recovery property from the allowance for first year depreciation.

Treats amounts claimed as the capital cost recovery of noncorporate lessors as an item of tax preference for purposes of the minimum tax.

Makes the investment tax credit refundable up to a maximum of $10,000.

Title III: Estate and Gift Taxes - Increases the unified credit against the estate and gift taxes from $47,000 to $155,800. Removes the provisions for phasing in such credits.

Eliminates the limitation on the amount of estate and gift tax deductions allowed as marital deductions.

Increases the annual gift tax exclusion from $3,000 to $6,000.