New Federal Tax Act Gives New Life, and Twists, to Treatment of Film, TV and Stage Productions

First: When can the deduction for production costs be taken? Under §181, prior to the Jobs Act, production costs incurred during a year could be deducted for such year if the costs were incurred with a reasonable certainty that the production would be completed (as a practical matter, the year in which funds for the budgeted costs had been fully raised and were beginning to be spent on production costs). That meant that unlike income forecast depreciation (the alternative in effect prior to §181's enactment), costs could be deducted even before a film was released, a television show broadcast or a live stage production had it first paid public performance.

Of course, if a project was not yet in release in the year in which production costs were incurred, there would not yet be revenue to report to take advantage of the deduction for cost of production. In that case, the production costs would produce a loss that could be carried forward and used to offset income when revenue started to come in or, alternatively, investors in a pass-through entity such as an LLC that owned the copyright to the project could take immediate advantage of the loss as a deduction against other qualifying passive income (subject to applicable limitations).  And if the deduction for costs of production were not fully used against other qualifying passive income, then it could be used to offset project income when the revenue comes in.