Question For FilmTVLaw.com:
My producing partner got a couple of investors interested in a feature project of mine, and one of them asked about the Section 181 Film Deduction. Has that deduction already expired?
Answer by Brandon Blake, Entertainment Lawyer:
Film and television producers are very fortunate this year, because a new version of the Section 181 Tax Deduction was passed as part of the Tax Cuts and Jobs Act of 2018 (TCJA). This is great news for anyone looking for private investor financing for a feature film, television series or live stage production. Please also see my Entertainment Lawyer Question and Answer Forum at www.filmtvlaw.com, for more in-depth advice that I publish twice a month.
For those who have been following the saga of the Section 181 Film Tax Deduction, it did expire at the end of 2016 with a lot of people assuming it would never return. But without much fan fair or publicity, a new tax provision emerged from deep in the 2018 Tax Cuts and Jobs Act (TCJA) that does the same thing, and it specifically references the original text of the Section 181 Tax Deduction, even though that deduction has expired.
WHAT IT DOES
Anyone familiar with the old Section 181 Tax Deduction knows that the purpose was to create a tax incentive for investors to invest in feature films, television shows, and later live stage productions made in the United States. The new Section 181 Deduction under the Tax Cuts and Jobs Act of 2018 (TCJA) likewise creates a 100% deduction for any money invested in a film, television series, or live stage production that is produced in the United States and that qualifies under the original qualification standards of Section 181.
What does a 100% tax deduction mean for a film or television investor? It means that for every $1.00 that a high net worth investor invests in a film or television series, the investor can write off 37 cents from that investor’s tax return. That is a tremendous incentive to invest in a film, television or stage production, when more than a third of the investment can be written off.
WHO CAN TAKE ADVANTAGE OF IT
Like the original Section 181 Tax Deduction, the new version of the Section 181 Tax Deduction can be taken when a producer sets up a qualifying securities offering, in which the private placement memorandum (PPM) and other provisions of the securities offering have been drafted to incorporate the new depreciation rules found in the 2018 TCJA version of the Section 181 Deduction.
The new Section 181 Tax Deduction under the Tax Cuts and Jobs Act applies to any investor that is subject to United States federal income tax.
HOW THE NEW SECTION 181 TAX DEDUCTION IS DIFFERENT
The new Section 181 Film Tax Deduction is different in a couple of ways that make it even better for investors and producers. First, there is no longer any cap to the Section 181 Deduction, meaning that even projects budged over $15 million can take advantage of the deduction. The studios and networks might be the biggest beneficiaries of the deductions, because now every film and television series produced in the United States for the next 5 years will get to take advantage of it if the production qualifies.
Second, the way that the deduction is taken by the production company is now different as well. Rather than an expense, it is a form of depreciation. The provisions are complicated for anyone that is not familiar with tax law, but the net effect is to create the same benefit for investors as under the original Section 181 Tax Deduction.
Third, there are no longer special zones where certain geographic areas get a higher cap, since the cap has been removed altogether.
If you are pursuing investor financing for a United States based production, contact our office for rates on a TCJA complaint securities offering. As with any entertainment matter, please do not make a decision about complex issues without consulting an experienced entertainment lawyer first. Feel free to contact my office at www.filmtvlaw.com about a quote.
- By Brandon Blake, Entertainment Lawyer