May 26, 2013 Film production tax deduction incentive extended through 2013
The Fiscal Cliff deal last January renewed and extended through 2013 a little known film and TV tax incentive under section 181 of the Code. Basically, in 2004, Congress passed legislation allowing a deduction of up to $15 million for investment US production. Absent this legislation, investors would be required to capitalize their costs and “amortize” or deduct them over the life of the production. Combined with state tax incentives, the hope is that film investors will now have sufficient incentives to keep them film investment dollars in the US and stem the tide of “runaway” film and television production moving to other countries.
It’s not a perfect solution, however, in that the deduction requires meeting the technical conditions of the statute, such as a proper election, budget limitations and a requirement that at least 75% of the production costs be incurred in the US. In addition, passive film investors will find that the deduction is a “passive deduction” meaning that it is limited to offsetting income from other passive activities. This may be an imperfect solution given that most films have high upfront costs, absent the use of some strategies designed to deal with the onerous passive activity loss rules. Nevertheless, section 181 can be an important benefit for investors in film and television projects in 2013.Disclaimer: This blog and website are public sources of general information concerning our firm and its lawyers, as well as the information presented. They are intended, but not promised or guaranteed, to be correct, complete, and up-to-date as of the date posted. This blog and website are not intended to be, and are not, sources of legal opinion or advice. The materials, information, and communications on this blog and website do not apply to any particular person, entity, or situation, and do not apply to you or to your specific situation. You will need to consult with an attorney and/or other appropriate professional about your specific situation. Thank you.