If you're involved in the film or TV industry in any way, there's a good chance you or someone you know has benefitted from Section 181 of the U.S. IRS Tax Code since it was established in 2004. Basically, it gives any investor the ability to deduct 100% of the money they invest in that same year for production costs up to $15 million dollars -- and possibly as much as $20 million dollars. The good news is that as part of the last minute "Fiscal Cliff" deal, Section 181 has been renewed for 2013, which means that investors have a federal incentive to put money into a project, in addition to the various state tax incentives.
Here is a little bit from The Hollywood Reporter on the news:
Chicago-based entertainment lawyer Hal "Corky" Kessler, who urged Congress to pass the tax incentives nine years ago, said Wednesday that he has been working closely with Baucus' office in recent months to make sure the measure was extended. He said he's planning to moderate a panel at the Sundance Film Festival this month to educate filmmakers and investors on what they need to do to qualify for the tax breaks.
"What it does is it helps stop runaway production," Kessler said. "It helps get investors who would like to have a significant impact in their taxes reduced."
The Directors Guild of America and the Independent Film & Televison Alliance put together a brochure in 2010 outlining the benefits of the tax code, known as "Section 181."
"This is a significant Federal tax incentive that allows producers of qualifying productions to take an immediate tax deduction for the full or partial costs of a production in the year the cost is incurred (as opposed to having to spread or amortize those costs over a period of years beginning after the film goes to market)," according to the DGA & IFTA.
According to the DGA document, the total budget is not factored into qualification, so any budget size can qualify up to $15 million, or up to $20 million if the production is shooting in a "distressed area." To qualify, at least 75% of the total production costs must be for services performed in the United States. This means that a movie or TV show cannot shoot 95% in another country, and come back to the U.S. expecting to get the tax break. The other interesting thing is that this applies to each individual episode of a TV show up to 44 episodes -- and those budgets can easily reach into the millions per episode.
This might be good for Hollywood, but it's equally as good for independent filmmakers as it gives a way to make film investing much more attractive for more people. If a particular investor makes quite a bit of money per year, whether a film eventually turns a profit may not even be a consideration thanks to Section 181 -- which means more people might be willing to put money in riskier or more challenging projects.
What do you think? Have you or your films benefitted from Section 181 in the past?