Section 181 Reinstated: Good News for Filmmakers!

Tax Law Extension Provides Major Tax Benefits for Investors of Film and Television Productions

by Carole Dean

In my recent interview with entertainment lawyer Corky Kessler, he was excited to tell us that he helped reinstate IRS Revenue Code Section 181 for five more years.  The reinstated Section 181 offers tax benefits for digital media producers.  This tax law is most beneficial for features and documentaries with budgets up to 15 million or 20 million.  It will greatly help producers of those projects attract financing.

Section 181

Expense Production Costs

The reinstated Section 181 is straightforward. It’s the same law that was created for the Jobs Act of 2004.  It’s been extended and approved for five years until 2025. It allows investors in a media production to expense all production costs when it is paid.  This creates a loss for the production which creates an immediate tax benefit.

The rules are that 75% of the costs of the film or television project must be spent and performed in the United States.  The balance of 25%, can be shot anywhere.  This means you can take advantage of other countries tax deductions like Canada or Germany.  Many countries have good tax incentives for you to shoot in their country.

US Tax law 168 is still in effect so you have a choice of using the reinstated section 181 or the 168.  The 168 has no limit on the size of the budget and you must “Put the film in service” to get the write off.  Those are two main differences and you can only use one of these, 168 or 181.

Cover Your Investor’s Money

“The good thing about the 181 is that I can cover the investor’s money.” Corky explained. “I can tell the investor that I can cover almost every dollar that the investor puts in. I can cover 70 to 76 cents on every dollar, which is amazing. There’s no other business that you can cover their investment, 70 to 76 on the balance.”

The 181 law allows up to a $15 million loss. Or you can go up to a $20 million loss if you spend a significant amount in a low-income or depressed area. For the person who has a 15 or $20 million dollar movie or even lower, the 181 is still better and you can grandfather your films.

Need Just One Day of Photography to Get Grandfathered In

“So, as soon as you have a screenplay, “ Corky says, “ and you have a summary budget, you are ready. You do one day of photography with some dialogue that doesn’t have to remain in the project. And you need your investment documents, which I can prepare, but you don’t need investors. Once you have these things, you can get grandfathered into 181 forever. That will never expire.

“Now when your film is grandfathered, you can change your screenplay or teleplay.  If it’s television, that’s acceptable. You want one day of photography with some dialogue. You can shoot it on your iPhone. It doesn’t matter, and you don’t have to use it in the project. Also, the investor documents that I prepare, those can change. Once you have these set up, you are grandfathered forever. There’s no end date.”

How to Learn More and Take Advantage of Reinstated Section 181 for Your Film

Filmmakers that want to know more about Section 168 or the 181 benefits and how to grandfather their films,  can contact Corky via email at Corkykessler@aol.com or on his cell phone at 312-925-2110.

For more information on both the 168 and 181 see this blog: https://fromtheheartproductions.com/how-to-get-your-film-funded-with-new-tax-law

 

Carole Dean is president and founder of From the Heart Productions; a 501(c)3 non-The Art of Film Funding Podcastprofit that offers the Roy W. Dean Film Grants and fiscal sponsorship for independent filmmakers. She hosts the weekly podcastThe Art of Film Fundinginterviewing those involved in all aspects of indie film productionHer new class “How to Fund Your Film” is available on Vimeo on Demand.  She is also the author of  The Art of Film Funding, 2nd Edition: Alternative Financing Concepts.  See IMDB for producing credits.

How to Get Your Film Funded with New Tax Law

Hidden in New Tax Law are Incentives For Film Donors and Investors That Could Help Finance Your Entire Film

 

by Carole Dean

Get Your Film Funded

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.

Bonus Depreciation

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.

Bonus Deduction

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 ckessler@rubensteinlaw.com   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-The Art of Film Funding Podcastprofit that offers fiscal sponsorship for independent filmmakers. She hosts the weekly podcastThe Art of Film Fundinginterviewing those involved in all aspects of indie film productionShe is also the author of  The Art of Film Funding, 2nd Edition: Alternative Financing Concepts.  See IMDB for producing credits.

 

 

Section 181 Tax Incentive for Filmmakers is Back

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.

Corky Kessler - Entertainment Attorney and Expert on Section 181

Entertainment Attorney and Section 181 Expert Corky Kessler

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.

You can contact Corky via email at kessler@dlec.com and or call him at 312 853 8448 For an accountant, he recommends Todd Hein with Crowe Horwath  who knows how to do the election and file properly.

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. .