Hidden in New Tax Law are Incentives For Film Donors and Investors That Could Help Finance Your Entire Film
by Carole Dean
Did you know that when President Trump signed into law the new Tax Cuts and Jobs Act in January, 2018, new incentives for film investors were created that could help get your film funded? I didn’t and I’m pretty sure most filmmakers we work with at From the Heart Productions did not know either (and since many in Congress had not even read the new law before it was enacted, they may be clueless as well).
Corky Kessler, Esq. is one of the top film attorneys in the US and he knows better than anyone how filmmakers can take advantage of tax laws. When I interviewed Corky on The Art of Film Funding Podcast, he brought this incentive to my attention and revealed you can use it to get your film funded.
The part of the new law that relates to film, television and theater and is called “bonus depreciation, section 168.” Bonus depreciation means when a film is first shown, at the end of that year, the investors get a 100% depreciation.
As a result, that means the investor can take a loss of 100% for the amount invested. For example, say your donor invests in 2017 and in 2018 you have your first screening. At the end of 2018, your investor can get his 100% depreciation for the total amount of his investment.
What a great way to attract major donors or investors to your project by giving them a massive tax deduction.
Take Advantage Before They Put Restrictions on This New Law
Before there was bonus depreciation, there was Section 181 of the tax code. Enacted in 2004, Section 181 allowed you to eliminate your investor’s tax bill by what they’ve invested in your film.
Corky says that, when section 181 was introduced, it had no rules or regulations until February 2007. Those first years were wonderful. It was like the wild, wild west with lots of opportunities to help film investors.
This new law replaces Section 181. And, just like the early days of that law, there are no rules and regulations for the new law. So, the field of how to interpret things is wide open. This is good for filmmakers.
Putting Your Film “In Service”
Your film needs to be “put in service” to get the depreciation. But, right now, there is no definition of what that exactly means. We know it has to be shown somewhere. The law just isn’t clear on where that somewhere needs to be. A festival could qualify. You could rent a theater, charge people a dollar, and the film is “in service.”
But, wait. The law does not say if it has to be shown in a theater. It does not even say how long the film has to be shown.
Corky says it could also be shown on YouTube or social media. The law is triggered when the film is “put into service” meaning the time that a film is first shown. For television, it is the year it is first aired, for theater it is the year of the opening night of the theater.
The Sky is the Limit
Under Section 181, said you could expense up to 15 or $20 million. This new law has no limit. It could be $100 million. Better yet, the law is retroactive and begins in 2017.
The New Law is Excellent for International Co-Productions
One carryover of Section 181 is that 75% of your service wages of the film have to be performed in the United States. 25% can be in any country you want.
So, in theory, let’s say we have a $10 million movie. You could spend $2,500,000 in service wages in Canada or England and take advantage of their excellent tax incentives for filmmakers. Plus, you could shoot in France with their 25% incentive or the Dominican Republic with a 25% incentive.
We can go any place that we want and spend the 25% and still qualify for the US incentive.
Part of the new tax law is Section 199A. It gives you a 20% deduction on taxable income for money coming back to you. If I return a dollar to you, you pay tax on only $.80. So, you make 20% on the incoming funds. I believe you can write off a maximum of $350,000.
Get a Good Accountant and Lawyer
There are limitations on what you can do under this. So, please make sure to talk to your accountant to understand them.
A good lawyer to guide you through this is advisable as well. Corky Kessler works at Rubenstein Business Law with his partner David Rubenstein. He can be contacted at firstname.lastname@example.org From the Heart highly recommends him and his services for filmmakers.
He’s been in the business for many years and he is intelligent, creative and a lot of fun to work with.
Carole Dean is president and founder of From the Heart Productions; a 501(c)3 non-profit that offers fiscal sponsorship for independent filmmakers. She hosts the weekly podcast, The Art of Film Funding, interviewing those involved in all aspects of indie film production. She is also the author of The Art of Film Funding, 2nd Edition: Alternative Financing Concepts. See IMDB for producing credits.