October 12, 2011

Your Film May Be More Appealing to Investors if You Start* by the End of the Year

Did you know that for the last seven years, film investors could tax-deduct the entirety of their film investment (up to $20 million), in the same year they made the investment, regardless of whether the film made a profit or loss? This has been possible thanks to IRS Code Section 181, which, according to indieWIRE, is the only federal tax credit available for independent film investors. Section 181 is set to expire at the end of 2011, however, and is not likely to be renewed. So if you're looking for investment in a film project of yours, and you want to entice investors with this significant deduction, you've got a little over two months to get started -- and by "get started," I mean getting your paperwork in order and filming at least one day (thus the reason for the asterisk).

Here's the word on the four things you must have in place by the end of the year, according to indieWIRE:

  1. A screenplay. It can be amended at any point thereafter.
  2. A budget. The budget can later be amended.
  3. An LLC. You must form and file an LLC for the project and draft all investment documents. Even if you don’t have the prospect of investors, you have to prove you were ready and able to accept them by the end of 2011.
  4. One day of photography, with dialogue. This must be a scene that’s in the screenplay—but there’s no requirement that it makes the final cut. (Give your attorney production reports that may be filed as proof.)

Once a project has been grandfathered, there’s no time limit to finish the film and the investment qualifies for Section 181 even if you wind up abandoning the project.

I am not a lawyer, and I don't even play one on TV, so definitely check with your own legal counsel (and read the full article below). Sounds like it's time to shoot one day of Man-child by the end of the year, however...

Link: You Have 81 Days to Make Your Next Movie Sexy to Investors - indieWIRE

Your Comment


Speaking of taxes, check out states that do tax incentives like Louisiana. If the film production is $300,000 or more (spent in state) the state gives you 30% back as a tax credit, which is transferrable (ie you sell it).

October 12, 2011 at 8:35AM, Edited September 4, 7:54AM


Boom. Great advice, Koo. Thz for the post --

October 12, 2011 at 12:30PM, Edited September 4, 7:54AM


Great post Koo. This site has really helped me alot. Cant wait to get my minute of "Man Child"! I am in the middle of a screenplay and I was wondering if you do any type of advising other than the posts on this site. (I really need it being that this is my first project!) At any rate, from one North Carolinian to another, Godspeed!

October 16, 2011 at 3:13PM, Edited September 4, 7:54AM


Is this just creating investment documents or filing a Form D?

October 18, 2011 at 5:21AM, Edited September 4, 7:54AM


I spoke to IRS counsel about this, and they made some important distinctions:

(1) They really expect a good faith effort to start production in 2011. If you shoot a day, and the footage doesn't appear in the final film, or if you don't have a full crew, or your script changes radically after 2011, they don't see it as a serious effort to make the film. You could lose the exemption.

(2) Specifically, they are on the lookout for "token efforts" designed exclusively to qualify for the deduction. They will disallow those projects.

The takeaway was that it's fine if you're really going to start shooting your movie this year, but don't bother slapping something together at the last minute to qualify for section 181.

December 10, 2011 at 10:09AM, Edited September 4, 7:54AM


I've done some checking around since this post as well. You're absolutely right -- but "good faith effort" is, of course, up to interpretation. I happen to have a scene that doesn't require the main actors but is in the script and SHOULD appear in the finished film. I haven't cast my film yet, so it is really the only scene I COULD get in the can before the end of the year. Is the scheduling of this shoot a blatant effort to qualify for 181? Yes. However, if the scene is used in the final film, could they really disqualify me from 181 because it was a "token effort?" It's a real scene. It needs to be shot. I already have my camera...

Ah, gray areas! A lovely part of the filmmaking process.

December 10, 2011 at 10:48AM, Edited September 4, 7:54AM

Ryan Koo