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Film & Television Tax Investment Objective & Strategies

The Tax Cuts & Jobs Act (TCJA) passed in December 2017 overruling Section 181.

The Tax Cuts & Jobs Act (TCJA) allows for U.S. film investors to benefit from a film investment tax deduction of up to $500K. Each accredited investor portfolio is unique and TCJA deductions depend upon an investors current passive and/or active investments.

Examples of TCJA tax deductions are as follows in the year the film or television show is first commercially screened:

1. $500K individual loss flow through.
2. Bonus depreciation.
3. Passive income – Passive loss.
4. Immediate expensing.
5. Follows the same rules as Section 181.
6. Independent film and television productions must be 75% produced within the United States.

The TCJA tax deductions phase out in the year 2027.

Put simply, TCJA the congressional revenue act ruled that a film investment in a motion picture or television shot in the US is partially tax deductible for the investor in the same year the film or television production is commercially screened.

The TCJA film investor may deduct the money which is invested in a film or television production from his or her passive income earned in the same year the production is commercially screened. If the investor is actively involved in the operation of the production equivalent to 500 hours, he or she may deduct the amount of investment from all active income earned in the same year the production is commercially screened. Productions with budgets below $15,000,000 (up to $20,000,000) which have at least seventy-five percent 75% of its production completed within the United States qualify under TCJA. Investors can be either individuals or businesses.

Here are some Investor broad strokes for the TCJA Tax Deduction

• Up to $500,000 USD of the motion picture costs are deductible in the same year of the first screening based on an investors other passive and/or active investments.
• 75% of the motion picture must be shot in the US.
• There is a $15 to $20 million dollar budget cap.
• There is no minimum film production budget cost.
• TV pilots, TV episodes (up to 44), short films, music videos and feature films all qualify.
• TCJA can be applied to active income or passive income.
• Investors can be either individuals or businesses.
• The motion picture’s corporation issues Schedule K-1’s to U.S. investors so they can take advantage of the TCJA.

Tax-efficient Investment Structure

Here’s an example of the tax benefits for a California resident:

(*1) After Tax Income is calculated after all taxes and the Initial Cash of $500,000 is invested in the Domestic Film Project
(*2) State Tax Credits available for filming in Louisiana and many other states
(*3) Net Income is derived from After Tax Income and State Tax Credits ($328,000 + $52,500)

WHAT IT MEANS FOR INVESTORS

Tax rebates and incentives for money spent on film or television production within a particular state can be combined with the benefits of the TCJA allowing an investor (working with cooperative film producers) to greatly minimize his or her ROI risk on what would ordinarily be considered a risky investment. For example, if a taxpayer is in the thirty-five percent (35%) tax bracket and a qualifying film is shot in Louisiana which has a state tax credit up to forty percent (40%), an investor has greatly reduced their risk. They would get the deduction of their federal taxes equal to their investment PLUS most states with incentives to monetize the credits BEFORE production for up to 90% of the credit amount. Continuing this example, if a film is shot in Louisiana with a budget of $1,000,000, the state would provide the production entity up to 40% of the entire budget in transferrable state tax credits. If the investor was not a resident of Louisiana, the state would monetize 90% of the credit to the production company before filming commenced. That would provide the investors a return of $360,000 ($1,000,000 x .40 x .90) before filming even began.

There are currently 38 states in the United States that have some type of tax credit or rebate plan.

Cash Distributions

An investment in the Partnership will not only generate an initial ROI cash return via the TCJA benefits, but a second ROI Cash flow from film projects will be distributed in the following priority:

• Investors will receive a 10% Preferred Return on their investment
• Investors will receive 100% of net cash flow until return to Investors of Initial Cash Investment
• Pay Debt service on Subscription Note.
• After return of Initial Cash Investment is returned, Investors will receive income as follows:
  • 75% Cash Flow until a 20% IRR is achieved, then
  • 65% Cash Flow until a 25% IRR is achieved, then
  • 50% Cash Flow until a 30% IRR is achieved, then
  • 25% Cash Flow once a 30% IRR is achieved on the lifetime of the project.