Tax Incentives for Film Investors, Pt. II

As I noted in a prior post, there are possible tax benefits for film investors under Section 181 of the tax code.  (Now, if I was trying to write a legal memo, I would use the correct cite, but I will refrain here.)  I met with a CPA recently to discuss this rule, and it appears that Section 181 is definitely available for this tax year.  (Again, my disclaimer: I am not a tax attorney nor have I ever wanted to be a tax attorney nor have I ever wanted to date anyone who is a tax attorney.  This blog is not meant to be tax advice.  You will need to consult with your own tax advisor.)  The main benefit of this rule is for film investors who are also "active investors" in the production entity, who would be able to deduct their investment against ordinary income.  "Passive investors" will only be able to deduct their investment as a passive loss against passive income, in the year when a loss is recognized.  Since we formed an LLC as the production entity, the LLC will need to file its own tax return, and in turn, "pass-through" the production expenses to the individual investors.  Sec. 181 can be extremely beneficial for filmmakers who have invested in their own films.  This of course assumes that struggling filmmakers have other income to offset their losses.  That is another topic for another day.