The US government gives filmmakers a great gift at the end of 2015 in the recently signed budget
by Carole Dean
Just before Congress dashed out for their end of year holiday vacation, Section 181 of the tax code of 2004 was reinstated. For a filmmaker, this is going to be an important tool to attract investors.
Enacted originally in 2004, Section 181 allows you to eliminate your investor’s tax bill by what they’ve invested in your film. It permits a 100% write-off for the first $15 million of the cost of producing a film in the U.S. It had expired at the end of 2014, but Congress instead extended it to the end of 2016 and made it retroactive to the beginning of 2015.
Entertainment lawyer, Corky Kessler, is one of our best film attorneys, an expert on Section 181, and one of its biggest advocates. He has used Section 181 seventy-four times to help filmmakers. He revealed more highlights and new benefits of Section 181 during my interview with him on my Art of Film Funding Podcast.
Section 181 is for shorts, documentaries and features up to $15 million and some up to $20 million dollars.
It covers all films started or finished in 2015, if you know how to apply for it. Section 181 also can cover films that finish in 2016.
How it works. For example, if $500K is spent on your film in 2016 and your investor is active in the production or made active, they can write it off as an expense against their taxes. If that investor is in a 30% tax bracket, they will save $150K from that $500K investment.
That is because you can create 100% of a tax loss when you invest under Section 181.
Depending on what state you decide to film in, you can minimize your investors risk considerably.
For example, let’s say you are shooting in a state with 40% state rebate your investor is using Section 181. If that investor is in the 35% tax bracket, then they could have an assurance that 75% of the money is returned to them.
States like Georgia, Louisiana, California and NY all have great incentives. To protect your investor Corky, recommends finding a state to shoot in with a good incentive. Some states like Louisiana allow you to bring people in to work on your film from out of state and you still get 30% benefits.
Section 181 is fairly simple if you have a good lawyer and accountant who can advise you on how to use it.
If your accountant is not well versed in Section 181, you can lose this benefit. For example, if the accountant capitalizes the production expenses you can lose this. Also, if your accountant does not file in the first year that you intend to use the 181, you cannot use it. Knowledge is the key to using this.
Also, for the first time, Section 181 includes theatre. Certain rules about theatre are still to be revealed. The good news is that you have until the end of 2016 to get your projects grandfathered in case this is not extended again.
Get started before you do your taxes.
“If you want to use 181 for an upcoming film you need to complete a form this year when you do your taxes.” Corky explained. “This form tells the IRS that you intend to use it for your film to shoot in 2016. That’s the most important thing to know now before you do your taxes.”
You also need to have your paperwork completed for the film. Your lawyer will know what papers are required. Put aside a week to get these done so that you can file that extension and be eligible for this great tax incentive offer for your investors.
Carole Dean is the president and founder of From the Heart Productions and author of The Art of Film Funding, 2nd edition: Alternative Financing Concepts. She hosts a weekly podcast, The Art of Film Funding, with guests offering tips and advice on indie filmmaking.
Her unique, innovative Intentional Filmmaking Class teaches filmmakers how to get their films funded. Corky Kessler is a guest speaker for the class. New classes begin February. .