As quickly as the movie stars posed for the cameras at the Oscars, the Congress approved the Tax Cuts and Jobs Act (“TCJA”) and left 90% of taxpayers holding the bag in some low-income areas.
However, unlike in ‘Once Upon a Time in Hollywood,’ taxpayers cannot do a reshoot if the first take is not outstanding. After almost two years, Congress may again decide to approve additional legislation within the 48-hour period, which may throw light on some of the issues that have arisen in Hollywood since the TCJA.
What Is It About?
If you have been following the spiel of the Section 181 Film Tax Deduction, you know that it expired at the end of 2016, with most people surmising that it will not return. However, without much fanfare, this new tax provision is back from deep in the 2018 Tax Cuts and Jobs Act (TCJA), and it works similarly: it creates a tax incentive for investors to invest in films, TV shows, and later theatrical productions made in the United States.
So, what does this mean for a film and TV show investor? Well, this means that for every $1.00 that a huge investor plows money into a film or TV series, the said investor can write off 37 cents from that investment’s tax return. That to say the least is a substantial incentive to invest in a film, TV production, or theatrical show when more than a third of the investment can be written off.
Who Will Gain From It?
Just like the first Section 181 Tax Deduction, this revised version can be taken when a producer makes provisions for a qualifying securities offering, whereby the private placement memorandum and other facilities of the securities offering have been outlined to assimilate the new depreciation guidelines found in the 2018 TCJA version of the Section 181 Deduction.
This new section, 181, under the Tax Cuts and Jobs Act, is pertinent to any investor that is subject to the United States federal income tax.
How Is It Different?
Well, this new version is different in that it makes things better for investors and producers.
The first thing is that there is no longer any cap to the Section 181 Tax Deduction, meaning that even the projects that are budged for over $15 million can gain from this deduction. Studios and networks might significantly benefit from the deductions, since now every film and TV production in the US for the next five years will make the most out of it the production succeeds.
Another varying quality is the way the production firm takes the deduction. Instead of it being an expense, it is a form of depreciation. The provisions are complex for anyone who does not understand the tax law, but the net effect is to generate the same benefit for investors as under the first under the original Section 181 Tax Deduction.
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