Have you heard of tax code Section 181?

Your Guide to State, Local, Federal, Estate + International Taxation

Back in 2004, in conjunction with the American Jobs Creation Act, there was a tax code section passed by Congress of which few people have heard. Section 181 allows taxpayers to claim their investment as a 100% loss on taxable income up to $15,000,000 (Yes, that is 6 zeros!) for qualifying motion pictures and television shows. There is also no minimum requirement. To give you a perspective of how big of a break this could be, let’s run some numbers. Say that you invest $1,000,000 in a local documentary. Let’s also say that you are in a 30% tax bracket. This would be able to save you $300,000 in taxes. Couple this with the various other incentives that certain states offer and that is quite a bit of tax savings and a big incentive for investors.

film, tv show, section 181, tax, IRS

Qualifying projects must be filmed in the United States for at least 75% of the time. The purpose of this tax incentive is to help produce jobs. Just one day of filming on location can boost the local economy upwards of $225,000. This instilled a circle of helpfulness by allowing filmmakers to get financing easier with the promise to investors that even if the film flops they still get tax benefits. It also encouraged filmmakers to film in the United States in order to attract the investors which, in turn, produced jobs at the locations of these films. This aided in keeping films in the United States since several other countries, including Canada, the United Kingdom, and Australia, already offer various incentives for filmmakers.

Section 181 has been renewed several times in the past, but experts are saying with the election this year being so unpredictable that this will slip through Congress and not be renewed, at least for 2017. Keeping this in mind, if you are thinking about using this tax code section to your advantage, you have until the end of the year. Those that do start investing in films this year will be grandfathered in perpetuity and be able to use the tax benefits in the future years that the money is spent on the film also. If you have a couple extra million, this may be the right fit for you!

Joanna Yergler, CPA