The Return of Tax Shelters for Film Investments

Filmdependent post on July 1st, 2007

Tax Law Changes and Incentives for Film Production

After thirty years of essentially clamping down on film investment, in October of 2004 the Internal Revenue Code was finally modified to give tax relief to investors in US-based film productions. Trying to understand all of the niceties of the new rule can make your head spin, but what is important to know is that investors in film and television productions budgeted between $1 million and $15 million which spend at least 75% of their “total costs” in the United States, can now write off 100% of the “total costs” of production in the first year. Prior to this, a complex method of amortizing the costs of the film over its commercial life was required, both cumbersome and certainly no incentive!

This new rule is a considerable boon to investors in films that meet the rule’s parameters. Essentially, they are discounting the dollars (according to an investor’s tax situation) used when investing in qualified films, thereby helping to reduce the risk in a risky business, and giving independent film producers a new marketing tool to use as they try to raise money for their films.
A key detail: The budget figures mentioned above are for “total costs,” which may include development, overhead and other costs, so investors and producers of films which are budgeted near the upper end of the scale should be carefully looking at what is included in “total costs,” so as not to spill over and out of the rule’s parameters.

In practice, tax law becomes much clearer as the IRS applies its own interpretation, so it may take a little bit for all of the elements and their specific impacts to become completely clear.

If you want some gory details in an analysis, go here:
Tax law may make your head spin a bit, but this article lays out the elements.

As it relates to our work here at Big Horse Incorporated, we have been involved in behind the scenes work with laying the foundations of several incentive programs. We feel that motion pictures are as viable, if not more viable than many other industries, more clean, and have a PR value like none other, so incentives are a win-win situation, and we will continue to support them.

In our daily work, in both projections scenarios and in cash flows, we do not usually calculate the terms of a deal beyond the gross income returned to a producing entity, or a producing entity and its cash flow participants. But this work does not include calculation of any tax consequences, as those are so individual to each investor; but what we provide can be used by each investor’s accountant, to find the position of each investor.

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