When do productions need to commence to qualify for the new incentive?
The incentive includes qualified productions that begin before January 1, 2014.
Can the immediate write-offs be taken in more than one year?
Yes, the deduction takes place in the year the production expenditure is incurred. Therefore, if qualified production expenses are incurred in more than one year, the immediate tax deduction will be taken in more than one year.
When, where, and how does the “election” to immediately deduct the qualifying expenditures apply?
The election is to be made on the tax return for the taxable year in which the production costs are first incurred. The election must be made by the due date (including extensions of time) of such return.
What tax form do I need to fill out to get the incentive?
Currently, there is no specific form to fill out. The IRS temporary regulations require that you declare in a separate statement that you are electing to utilize Section 181. The legislative history also states that: “deducting qualifying costs on the appropriate tax return shall constitute a valid election.” Therefore, deducting the production costs (that would otherwise be capitalized) on your tax return will qualify as electing to take advantage of this incentive.
Does it apply to all productions (e.g., big budget productions)?
Yes, as mentioned above, the immediate write-off provision now applies to the first $15 million (or $20 million in low income or distressed areas) of costs for all productions regardless of the aggregate cost of the project.
What is the real benefit of this incentive?
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).
How do I determine if it is beneficial to my production?
Since the new incentive is elective, producers can run numbers with or without the new incentive and determine whether or not to elect to immediately expense the production costs in the first year(s).
Is the incentive transferable?
No. However, depending on the investment structure you choose, multiple parties may be able to properly allocate costs that could be immediately expensed.
What happens in the case of a co-production or a film financed by multiple investors?
The $15 million ($20 million) threshold refers to the qualifying film. The benefits of the provision must be allocated among the owners of a film in a manner that reasonably reflects each owner’s proportionate investment in and economic interest in the film.
How will other practical issues related to this broadened incentive be determined?
Like other tax issues, producers should consult with their professional tax advisors on any issues related to this new Federal tax incentive. In light of the new legislation, the Treasury and IRS may revise their temporary regulations, which may come in the form of Notices and Regulations. A number of groups that worked on this important legislative change are expected to continue working with the Treasury Department and the IRS to ensure the incentive fulfills its objective and provides the industry with meaningful tax relief.
Are there other Federal tax incentives that may be valuable to film productions?
Yes, all US based productions continue to have other potential incentives including a 6% tax deduction from gross revenues for U.S. film and television production activities (Section 199). Producers should consult with their professional tax advisors for other tax incentives that may be available.