Base-Broadening Tax Act of 1985

Base-Broadening Tax Act of 1985 - Amends the Internal Revenue Code to provide for temporary reductions in certain income tax credits and deductions for taxable years beginning on January 1, 1986, and ending on December 31, 1989.

Provides for a ten percent reduction during such period of the amount of itemized deductions of an individual taxpayer.

Provides for a 20 percent reduction during such period of: (1) the credit for the elderly and the permanently and totally disabled; (2) the credit relating to interest on certain home mortgages; (3) the foreign tax credit; (4) the credit for tax withheld on wages; (5) the earned income tax credit; (6) the credit for tax withheld at the source on nonresident aliens and foreign corporations; (7) the credit for certain uses of gasoline and special fuels; and (8) the Puerto Rico and possession tax credit.

Provides for a 20 percent reduction during such period of the income tax deductions for: (1) accelerated cost recovery; (2) amortization of railroad and tunnel bores; (3) circulation expenditures, research and experimental expenditures and tertiary injectants; (4) real property construction period interest and taxes attributable to low-income housing; (5) percentage depletion in excess of basis; (6) intangible drilling costs and mineral exploration and development costs; (7) certain financial institutions preference items; (8) special life insurance company deductions; and (9) capital gains.

Provides for a 20 percent reduction during such period in: (1) the benefits of the incentive stock option provisions; (2) the benefits of the Foreign Sales corporations provisions; (3) the deferral of tax on income of controlled foreign corporations; (4) the benefits of the corporate liquidation nonrecognition provisions; (5) the exclusion of interest on certain loans used to acquire employer securities; (6) the benefits of the ten-year averaging for lump-sum distributions; (7) the benefits of deferral of certain shipping income; and (8) the amount allowable as depreciation of pre-1981 frozen asset base of certain railroads.

Provides for a 20 percent reduction during such period of the dollar limitation with respect to: (1) used property eligible for the investment tax credit; (2) the partial exclusion of dividends received by individuals; (3) the one-time exclusion of gain on the sale of a residence; (4) the exclusion of earned income of citizens or residents of the United States living abroad; (5) the deduction for certain depreciable assets; (6) the amortization of reforestation expenditures; (7) the deduction for retirement savings; (8) the deduction for certain employee gifts; (9) the deduction for luxury cars; (10) the benefits and contributions under qualified plans; (11) the amount of private activity bonds and mortgage subsidy bonds which may be used during revenue enhancement period; (12) soil and water conservation expenditures; and (13) expenditures by farmers for clearing land.

Increases the rate of the alternative minimum tax during the period from January 1, 1986, through December 31, 1989.

Sets forth definitions and special rules.