Indiefilmlaw's Blog
Ideas, Inspiration and Legal Resources for Artists, Filmmakers, Producers and Film Students

Clock is Ticking on IRS Section 181 Film Tax Incentive!

“American Jobs Creation Act: Section 181” provides 100% Federal deductions against passive income. State Film Production Tax Credits may also be available.

What Is Section 181?

How Does Section 181 Work?

Who Is Eligible for Section 181 Deductions?

Section 181, first enacted by Congress in 2004, and blogged about here, was extended and modified on October 3, 2008. Section 181 permits a 100% write-off for the cost of certain audio-visual works, regardless of what media they are destined for (e.g., theatrical, television, DVD, etc.). It applies to “qualified productions” that begin the first day of principal photography before January 1, 2010. Deducting the production costs that would otherwise be capitalized up to for the first $15 Million (or up to $20 Million in low income/distressed areas) on your tax return will qualify as electing to take advantage of this incentive.

How Does Section 181 Work?

The election is to be made on the tax return for the taxable year in which the production costs are first incurred. The election must be made by the due date (including extensions of time) of such return. Producers or active financial participants in qualifying film and television productions may elect to immediately deduct the cost of qualifying film expenditures in the year the expenditure occurs.

The $15 million ($20 million) threshold refers to the applicable film. The deduction must be allocated among the owners/investors of a film in a manner that reasonably reflects each owner’s proportionate investment in and economic interest in the film.

In order to qualify for the $20 Million deduction, the IRS outlined two alternative tests. One test, based upon production costs and setting a twenty percent (20%) threshold, compares production costs incurred in first-unit principal photography that takes place in a designated area to all productions costs incurred in first-unit principal photography.  This does NOT include preproduction, editing and post-production costs. The second test, requires that at least 50% of the total days of principal photography occur in the designated area.

How Can I Take advantage of Section  181 before it Expires on January 1, 2010?

To qualify, productions need to commence before January 1, 2010. The deduction applies in the year the expenditure is incurred. Therefore, if production expenditures are incurred in more than one year, the immediate tax deduction will be taken in more than one year.

Like other tax issues, producers should consult with their professional tax advisors on any issues related to this new Federal tax incentive. In light of the new legislation, the US Treasury and IRS may revise their temporary regulations, which may come in the form of Notices and Regulations.

Key Take-Aways:

  • 100% passive income deductions under the IRS Section 181 for both individuals and corporate tax payers
  • Potential for additional 20%-30% in State Tax Credits (depending on state)
  • Productions need to commence before January 1, 2010.
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15 Responses to “Clock is Ticking on IRS Section 181 Film Tax Incentive!”

  1. Hello David,

    So, what’s the latest word on Section 181? I’ve heard that they are going to renew it.

    Thanks,

    Steve Wilburn

  2. Just got off the phone with Hal “Corky” Kessler, a well-known IRS Section 181 expert. He says IRS Section 181’s renewal has been approved by the House of Representatives and needs confirmation in the Senate.

  3. Thanks!

    Please let me know what happens in the Senate.

    thanks again,

    Steve Wilburn

  4. Any update on Senate approval?

  5. Hello Harsha,

    Thank you for getting back to me. If something happens, please let me know.

    Best regards,

    Steve Wilburn

  6. Please let me know of any Section 181 renewals. Also, is there a Section for federal film/tv infrastructure credits?

  7. Can you tell me where to indicate the deduction on my LLC’s form 1065? I was told by the IRS to use Schedule K, line 13dE, code W. But when I enter a number here, either negative or positive, opposite “deductions, expenses, losses directly allocable to DPGR”, it doesn’t add up. Not sure what I’m doing wrong.

  8. As I understand the current status of the Jobs Creation Act which contains the extention of Section 181 for calendar year 2010, it has passed the House and is posed for a vote in the Senate with amendments. This, I think, would require a second vote by the House.

    Any idea of the odds and timing of actual approval and realization of the extension?

  9. Does anyone know of a book that helps new filmmakers who started a movie in 2008 and completed it in early 2011, and which addresses tax situations, deductions, expenses, etc. There is NO income yet except for a preliminary screening in early 2011. Sole proprietor. Filmed entirely in NYS. Lots of defered expenses. Investors get paid when there is income. Expenses only would create a loss every year- so not sure and IRS site was not helpful with this topic. Thanks! (please feel free to email direct as well- challengefilms~aol.com)

    • I’m not aware of any book that will adequately address your specific legal concerns. Your situation may be more complex than you realize. There is no substitute for a lawyer familiar with all the issues that go into producing and distributing films. If you cannot afford a competent lawyer, you should look to see if there are any creative arts legal organizations in your area. Chicago has Lawyers For The Creative Arts. (www.law-arts.org)

  10. irs levy…

    […]Clock is Ticking on IRS Section 181 Film Tax Incentive! « Indiefilmlaw's Blog[…]…

  11. According to what i read and what I believe IRS is stating on their site, you can take 100% of investment and have it as a write off that year.However, as far as I can see, there is NO provision for trades and/or deffered expenses. Also, there was a mention of 2 year carry back and possible carry forward. I have worked with several groups that were able to get the credit.However, I’m still waiting to see if the rule is extended……

  12. I Will have to return again when my course load lets up – nonetheless I am taking your Rss feed so i could go through your internet site offline. Thanks.


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