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.

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Roger Royse

Roger Royse, the founder of the Royse Law Firm, works with companies ranging from newly formed tech startups to publicly traded multinationals in a variety of industries. Roger regularly advises on complex tax structuring, high stakes business negotiations and large international financial transactions. Practicing business and tax law since 1984, Roger’s background includes work with prominent San Francisco Bay area law firms, as well as Milbank, Tweed, Hadley and McCloy in New York City.
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