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Obama-Republican Tax Bill Includes Extension Of Film Tax Break Section 181

Filmmaker Justin Eugene Evans forwarded me news that an extension of Section 181, the film production tax break, was included in the bill signed by President Obama today. Here, reprinted with permission, is an email containing the news.

Dear Film Professionals –

Section 181 has finally been renewed! The new Tax Bill was signed into law by President Obama earlier today. The tax law includes Section 744, which includes language that replaces IRC Section 181’s expiration date of December 31, 2009 with December 31, 2011.

Here is what this means:

1.) Any money spent on qualifying domestic film production* in 2010 now qualifies for the Section 181 tax write-off.
2.) Any money spent on qualifying domestic film production* in 2011 will also qualify for the Section 181 tax write-off.
3.) There is no gap in Section 181 protection…which means all the fear and worry that someone might have begun a project in 2009, somehow didn’t get the financing in place and investors invested in early 2010 can now breath a sigh of relief.

*Please, remember that a “qualifying domestic film production” can be complicated and requires reading the original section of the IRC. My interpretation is if you shoot a movie, television episode, music video, short film, webisode, etc. the investors will be able to deduct 100% of their investment in the same fiscal year. Traditionally, investors must deduct there investment over a three year period. Why is this a big deal? For professional high networth investors who need deductions in order to defer income Section 181 makes the film industry an excellent income deferral strategy. It makes our industry one of the most attractive for investors who are actively seeking legal income deferral strategies. Coupled with rebates from states it is possible for an investor to make a profit on a motion picture before the film has sold.

A lot of people will talk about how complicated Section 181 is. I personally find it easy to understand. If I shoot 75% of a motion picture inside the US it qualifies. If I shoot a television series then several seasons of episodes will qualify. If I shoot a music video it qualifies. If I shoot a documentary it qualifies. If I shoot a TV commercial, pornographic film, corporate video or informercial it won’t qualify. Distribution expenses won’t qualify. Development will, assuming it has been financed prior to the December 31st, 2011 deadline. And, because of the grandfathering clause, if I begin production on a movie in 2010 or 2011 but do not complete it until after December 31, 2011 then all of it’s expenses will still qualify for Section 181 even if Section 181 is not renewed in 2012.

Those are the conclusions I have reached with my legal & tax consulting team. Please, consult with your own legal and tax experts. Be skeptical of my interpretations and this email. Verify the details with certified experts you trust.

However, the reason I’m writing this is because Section 181 has largely gone unused by smaller independent films and we’re the ones who can benefit from this most. The studios already use this to minimize risk and accelerate an exit for their investors. Now, every independent filmmaker needs to use this. This can be the turning point for independent film in America. This is how we can be self-reliant.

I hope Section 181 enables your dreams to come true in 2011!

Justin Eugene Evans

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