Provides for 100% write-off in first year up to $15 millionn.
Thereafter, capital gains only taxed at 15% rather than 35%.
Any tax professional can also review.
SYNOPSIS: The American Jobs Creation Act of 2004 creates an extraordinary new tax incentive for film producers who make low- and medium budget films (under $15.0 or $20.0 million) in the U.S. The new law allows producers of qualifying films to elect out of the uniform capitalization rules which mandate that film costs be deducted gradually
over a filmâ€™s useful life or be matched to a film's projected income.
Costs of qualifying films can now be deducted in full in the year they are incurred.
The purpose of the new tax law is to stimulate investment in domestic film production operations and make domestic film production more competitive with production options.
On October 22, 2004 the American Jobs Creation Act of 2004, which amends the Internal RevenueCode of 1986, was signed into law. The congressional committee statement indicates the purpose of the bill is to â€œremove impediments in [the Internal
Revenue Code]â€?and make our manufacturing, service, and high-technology businesses and workers more competitive and productive both at home and abroad. The Act creates three tax incentives expressly applicable to motion pictures one of which 181 of the Internal Revenue Code is especially significant to independent film producers.
Overview of New IRC 181. Section 244 of the Act, entitled Special Rules for Certain Film and Television Productions, adds a Itemized Deductions for Individuals and Corporations.ection 181, entitled reatment of Certain Qualified Film and Television Productions, gives the taxpayer an election to deduct, in the year the expenses are incurred, the costs of any qualified film or television production.
The new rules are in effect as of the date of enactment, October 22, 2004, and are applicable to qualified productions commencing before 2009. Section 181 has three principal limitations on this incentive: a dollar limitation of $15.0 or $20.0 million; The production must be a qualified film or TV production and an exclusivity of the deduction/amortization. Dollar Limitation. The deduction election does not apply to any qualified film which has an aggregate cost greater the $15.0MM. The dollar limitation is $20.0 MM for any qualified film the aggregate cost of which is significantly incurred in an area eligible for designation as an IRC 45D low income community 11] or a Delta Regional Authority distress, county or areas. Qualified Film or TV Production and Qualified Compensation. The section 181 deduction election is only available to qualified film or television productions, defined as any production within the dollar limitations described above, in which 75 percent of the total compensation of the production is qualified compensation. 13] Qualified Compensation. Qualified compensation means compensation for performed in the U.S. by actors, directors, producers, and other relevant production personnel.  It does not include residuals and participations as defined in 167(g)(7)(B) of the Code. Real World Effects of 81:
A Practical Analysis. Films qualifying for 181 treatment must meet the dollar limitation($15/$20million). Generally speaking, films in this budget range are considered low- or medium-budget films, the average budget for a studio picture in 2003 being more> than> > $59.0 million. Additionally, qualifying films must meet the qualified compensation requirements; i.e., 75% of total compensation must be paid for service performed in the U.S. Thus qualifying films will be independently produced American films. The incentive to independent producers is that the great bulk of production costs for these qualifying films no longer need to be capitalized; thus, 181 will grant independent producer/ production company taxpayers 100% deductions for the costs of their film productions in the same year those costs are incurred. In effect, the costs of qualifying films become a trade or business expenses outside the purview of the uniform capitalization rules of 263A. The tax benefits of 181 will likely stir great interest in film production investment by investors seeking to offset their passive income with passive losses from single-purpose production ventures. Additionally, since the new section grants substantial new deductions for production company taxpayers who are already in the business of making low and medium-budget films, it will dramatically lower such taxpayers tax liabilities. The net effects will probably include more independently produced productions.