Economic Recovery and Job Creation Act of 1981

Economic Recovery and Job Creation Act of 1981 - Title I: Capital Cost Recovery - Amends the Internal Revenue Code to allow individuals and corporations a recovery deduction for a percentage of the cost of depreciable tangible property (equipment or machinery), used in a trade or business or held for the production of income, which is placed in service after December 31, 1980.

Establishes four classes and recovery periods for such property: (1) Class 1, two years; (2) Class 2, four years; (3) Class 3, seven years; and (4) Class 4, ten years. Requires assignment of property to the class which has a recovery period at least 40 percent shorter than its present midpoint useful life under the Asset Depreciation Range (ADR) system. Permits the taxpayer to elect: (1) placement of any item of property in the class with the next longer recovery period than the class to which it would otherwise belong; or (2) placement of qualified recovery property (defined as property placed in service in areas of high unemployment or used primarily in the manufacture or distribution of certain alternative fuels or energy products) in the class having the next shorter recovery period than the class to which it would otherwise belong.

Defines the recovery percentage as the percentage (100 percent, 150 percent, or 200 percent) selected by the taxpayer for a class of items, divided by the number of years in the corresponding recovery period. Requires a taxpayer to establish a recovery account for each class of recovery property. Denies eligibility for a recovery deduction to livestock, property subject to amortization, property depreciable on a basis other than time, public utility property, oil or gas fired boilers, and property used predominantly outside the United States.

Increases from 20 percent to 30 percent the permissible ADR variance from class life for public utility property.

Revises the applicable percentage for determination of the investment tax credit to: (1) 25 percent of the basis of an asset if its useful life is between two and four year (currently, 33 1/3 percent if its useful life is between three and five years); (2) 60 percent of asset basis if its useful life is between four and seven years (currently, 66 2/3 percent if its useful life is between five and seven years); and (3) 100 percent of basis if its useful life is seven years or greater (currently the same).

Sets the energy percentage and employee plan percentage for qualified recovery property at: (1) 66 2/3 percent of the basis of an asset if its useful life is between two and four years; and (2) 100 percent of basis if its useful life is four years or greater.

Allows election of: (1) 20 year straight line depreciation for depreciable realty; (2) 15 year straight line depreciation for low-income housing; and (3) 15 year depreciation computed under the declining balance method at a rate not exceeding 150 percent of the straight line depreciation rate for certain qualified owner-occupied industrial and commercial buildings.

Allows an irrevocable election to treat the first $40,000 ($20,000 in the case of a married individual filing a separate return) of expenditures for recovery property which is purchased for use in a trade or business as currently deductible non-capital expenses.

Sets forth rules for treatment of the depreciation allowance for any recovery property in computing the earnings and profits of a corporation.

Revises the progress expenditure rules to eliminate the useful life requirement for depreciable property constructed by or for a taxpayer for use in trade or business (qualified progress expenditure property) and to apply to such property the revised percentages for determining the investment tax credit under this Act.

Allows current depreciation of any qualified progress expenditure property not yet placed in service.

Increases from ten to 25 percent the rehabilitation tax credit for nonresidential structures.

Title II: Targeted Jobs Credit - Revises the rules for computing credits for employment of certain new employees to include an individual as a member of a targeted group if such individual has been terminated from previous employment as a result of modernization of equipment or facilities.

Title III: Treatment of Certain Federally Required Nonproductive Expenditures As Expenses - Allows taxpayers to treat federally required nonproductive expenditures as currently deductible business expenses. Defines "federally required nonproductive expenditures" as expenditures in connection with a business which are required by Federal or State law, but which do not significantly increase the profitability of the business.