Section 181 “Indie” Film Tax Credit Resurrected in Tax Deal
Obama has breathed new life into the Section 181 film tax credit (originally blogged about here) that had expired at the end of 2008. Originally signed into law as part of the 2004 Jobs Creation Act, it has been resurrected as part of the controversial new tax bill. The new tax bill recently signed into law will extend the film tax credit to the end of 2011. Importantly, it can be applied retroactively to all qualifying films produced in 2011 and 2010.
The bill allows income tax incentives for investors in independent film and television projects. 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.).
There are some limitations to the credit, such as:
- The aggregate costs do not exceed $15 million for each qualifying production ($20 million if a significant amount of the production costs are incurred in certain designated areas).
- A film or television production is a qualified film or television production if 75 percent of the total compensation of the production is compensation for services performed in the United States by actors, directors, producers, and other relevant production personnel (the 75 percent test).
- The incentive only applies to monies spent from US equity investors – you cannot benefit from presale and gap loans.
- Television production is limited to 44 episodes.
This widely-anticipated and closely-watched renewal brings a sorely needed benefit at a critical time in independent film finance. Independent film projects continue to struggle to find financing. Low budget indie filmmakers may have the most to gain because their films are often financed almost entirely by one are a few equity investors, all of whom can share in this benefit.
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