“How the New Tax Law Impacts Hollywood: Lights, Camera, Accelerated Deduction!” by Venable counsel Shane Nix, was published in the American Bar Association’s Business Tax Quarterly on April 12, 2018. Here is an excerpt:
Costs for film and television productions generally are required to be capitalized and added to the tax basis of the resulting copyright. Absent a provision allowing for accelerated cost recovery, the tax basis of a copyright generally must be depreciated and recovered over a ten-year period, using the “income forecast method,” which is intended to match the depreciation expense with the projected income from the film or television production. Generally, film and television productions produced overseas or productions otherwise not eligible for accelerated cost recovery will be recovered using the income forecast method. Historically, however, production costs for domestic productions have been eligible for deduction immediately as and when incurred, where a certain tax election was made (a “Section 181 Election”). The purpose of the Section 181 Election generally is to incentivize production companies to produce film and television productions in the United States. For a number of years, Section 181 was renewed retroactively as part of Congress’s extenders package, which meant that production companies faced uncertainty during the year because they did not know whether the Section 181 Election would be available. Most recently, Congress extended the availability of the Section 181 Election retroactively through 2017 when Congress passed an extenders package on February 9, 2018. So much for incentivizing U.S. production prospectively!