The new tax law, commonly referred to as the Tax Cuts and Jobs Act (the "Act"), contains some good news for producers of motion pictures, television programs and live theatrical shows (each a "Production") and their investors. Section 181 of the Internal Revenue Code, which expired on December 31, 2016, permitted the immediate deduction of Production costs (instead of recovering those costs under the income forecast method of depreciation). The Act revives the immediate deduction available under Section 181, but with some significant differences mostly beneficial to producers and their investors.
First, the 100% deduction of Production costs no longer requires an election which, when made, determined the year in which the costs were deductible. Now, the year in which the 100% deduction is to be taken is the year in which the Production is "placed in service", as defined in the Act. Costs incurred after September 27, 2017 may now be deducted in full immediately if the Production is placed in service after September 27, 2017.
Second, pre-Act Section 181 allowed a deduction of no more than $15 million of Production costs ($20 million if costs were incurred in certain locations); under the Act, the $15 million (or $20 million) limit no longer applies.
Third, and perhaps most significantly, this treatment now is available for 5 years, instead of the shorter periods available under pre-Act Section 181. This means that when raising capital, there is now greater predictability about this tax treatment.
This alert provides general coverage of its subject area. We provide it with the understanding that Frankfurt Kurnit Klein & Selz is not engaged herein in rendering legal advice, and shall not be liable for any damages resulting from any error, inaccuracy, or omission. Our attorneys practice law only in jurisdictions in which they are properly authorized to do so. We do not seek to represent clients in other jurisdictions.