Section 168(k) Bonus Depreciation for Film: The Structure That Doesn’t Need Congress

Section 181 expired on December 31, 2025, and its replacement is still sitting in committee. Bonus depreciation under Section 168(k) did not expire — Congress made it permanent last summer. For investors who want a film deduction this year, that makes 168(k) the structure that matters. Here is how it works, what it requires, and where the math comes from.

Why We’re Writing About 168(k) Now

For most of the last two decades, the conversation about film tax incentives at the federal level started and ended with Section 181. It let an investor expense the cost of a qualified film in the year the money went in, and it was the backbone of a lot of independent financing. It also had a habit of lapsing. It expired, was reinstated retroactively, expired again, and finally sunset for good at the end of 2025.

The bill that would bring it back — the CREATE Act (H.R. 4840 / S. 2530), introduced in August 2025 with bipartisan sponsors in both chambers — would extend Section 181 through 2030. We track it closely and we expect to structure deals under it again if it passes. But “if it passes” is not a financing plan, and an investor with a large 2026 tax year cannot wait on the House Ways and Means calendar.

Meanwhile, a different section of the Code quietly became the more reliable tool. The One Big Beautiful Bill Act, signed July 4, 2025, restored 100% first-year bonus depreciation under Section 168(k) and, unlike every prior version, gave it no phase-down and no sunset. It applies to qualifying property acquired after January 19, 2025. Films have been on the list of qualifying property since the 2017 tax reform. So the question is no longer whether there is a federal film deduction available in 2026. There is. The question is whether a particular film, and a particular investor, fit it.

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What Section 168(k) Actually Is

Bonus depreciation is not a film provision. It is a general rule that lets a taxpayer deduct the cost of certain business assets in the year they are placed in service instead of spreading the deduction over the asset’s recovery period. It was written for equipment and machinery, and most of the property that gets bonus-depreciated in America is exactly that: trucks, tooling, servers, farm equipment.

The Tax Cuts and Jobs Act of 2017 added two categories to the definition of qualified property: qualified film or television productions and qualified live theatrical productions, borrowing Section 181’s definition of what counts as a qualified production. That amendment, at IRC §168(k)(2)(A)(i)(IV), is what puts a feature film in the same category as a combine harvester for depreciation purposes.

Three things follow from that, and they are the reasons we consider 168(k) the more durable of the two film structures:

• It is part of the permanent tax code. Section 181 was a temporary, film-specific extender that had to be renewed by name every few years. Bonus depreciation is a general business provision with a constituency that includes every capital-intensive industry in the country. It is not going to lapse because nobody in Congress remembered the movie business.
• It is broadly understood. Your CPA has run bonus depreciation on hundreds of returns. The film-specific pieces — the placed-in-service rule, the appraisal, the note — are new to most advisors, but the underlying mechanism is not.
• It applies to used property. Since 2017, bonus depreciation is available on property the taxpayer buys from an unrelated party, not just property whose original use begins with the taxpayer. That is what makes it work for an investor acquiring a completed film rather than funding one from a blank page.

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How a 168(k) Film Deal Is Structured

The transaction is a seller-financed sale of the film. The mechanics will look familiar to anyone who has seen a leveraged Section 181 deal, because they are close cousins:

1. The film is appraised. An independent, qualified appraiser establishes the fair market value of the finished (or nearly finished) picture. That number is the foundation of everything that follows, which is why it cannot come from the producer or from us.
2. The investor acquires the film. The investor purchases the copyright — the film itself, not a share in a production company — at the appraised value. The purchase runs through an arm’s-length chain (investor to a separate reseller entity to the producer) with clean chain of title documented at every step.
3. The price is paid in cash plus a note. The investor puts down cash, typically 10% to 20% of the fair market value, and the producer finances the balance through a purchase money note. In our deals that note is recourse: the investor is personally liable on it, it has a fixed term and interest rate, and it does not go away if the film underperforms. That is not a detail. It is what puts the investor genuinely at risk on the full purchase price under Section 465, which in turn is what supports deducting the full purchase price rather than just the cash.
4. The film is placed in service. Once the film is released to the public, the investor claims 100% bonus depreciation on the full basis — cash plus note — in that tax year.
5. Revenue services the note and pays the investor. Distribution revenue flows through a waterfall that pays down the note and delivers the investor’s negotiated profit participation, up to 20% in a 168(k) structure. A tax impound on distribution revenue is maintained to cover the ongoing tax obligations the structure creates.

The thing to notice is what is being deducted. In a 168(k) deal the investor is depreciating the fair market value of a real, finished asset that they own. Under Section 181 the deduction was tied to production spending on a film that did not yet exist. That difference is the source of both the structure’s main advantage and its main constraint.

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The Worked Example: A $10M Film, an Investor at 37%

Here is the hypothetical we use in our investor deck. It is illustrative only, it ignores state taxes, and every real deal will differ. But the shape of the math is the point.

• Film fair market value (independent appraisal)$10,000,000
• Investor cash down payment (18.5%)$1,850,000
• Seller-financed recourse note (81.5%)$8,150,000
• Total depreciation deduction (100% of basis)$10,000,000
• Federal tax savings at 37% marginal rate$3,700,000
• Less cash invested($1,850,000)
• Net federal tax benefit, before any film revenue$1,850,000 · 2.0x cash

The investor puts in $1.85M and reduces their federal tax bill by $3.7M in the year the film is released. That is where the “up to 2x” comes from: at the top federal bracket, a deduction equal to roughly 5.4 times your cash produces tax savings equal to roughly twice your cash. Profit participation in the film’s revenue sits on top of that.

What the 2x does and doesn’t mean

We would rather you hear this from us than from your CPA. The $8.15M note is real debt, and the deduction is built on it. Over the life of the deal, film revenue is expected to service and retire that note. If it doesn’t — if the film never generates enough to pay the note down — the unpaid balance is cancelled, and cancellation of debt is income. In that scenario the structure ends up working as a long-term deferral rather than a permanent write-off: a large deduction today, offset by income recognized years later. The tax impound on distribution revenue exists precisely to manage that exposure, and our tax opinion letter addresses it directly.

That is not a reason to avoid the structure. Deferral at the top marginal rate over a multi-year horizon has real value, and a film that performs turns the deferral into a permanent benefit plus a revenue stream. But an investor who goes in thinking of the 2x as free money will be surprised later, and we would rather have the conversation up front.

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“Placed in Service”: The Rule That Governs Everything

If you take one thing from this article, take this. Under Section 181, the deduction was available as soon as the money was spent, which is why it could finance films from day one of pre-production. Under Section 168(k), no deduction is available until the film is placed in service, and the statute defines that moment for films specifically: a qualified film or television production is placed in service at the time of its initial release or broadcast (§168(k)(2)(H)).

In practice, initial release means the film has been completed and exhibited to the public. A theatrical opening qualifies. So does a festival premiere, a streaming platform launch, or another bona fide public exhibition. What does not qualify is a rough cut, a private investor screening, or a film that is “done” but sitting on a hard drive waiting for a distributor.

That constraint is also what defines the sweet spot for the structure. Section 168(k) is not the right tool for a script and a director’s reel. It is the right tool for:

• Films in post-production that need completion funding. The picture is shot, the release path is visible, and the capital closes the gap between the assembly cut and a deliverable film.
• Completed films awaiting distribution. The asset exists and can be appraised on what it is, not on what it might become.
• Films with imminent, committed release dates. A festival slot, a platform date, or a theatrical booking that makes the placed-in-service timing predictable.
• Catalog titles being acquired for distribution. Because bonus depreciation works on used property, a library title changing hands can qualify, which Section 181 never allowed.

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168(k) vs. 181, Side by Side

The profit participation difference is deliberate. A 168(k) investor is accepting a tighter set of conditions — the film has to be nearly done, the timing has to be right, and the window of films that qualify is narrower — so the deals carry a larger share of the upside to compensate.

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Advantages and Honest Constraints

What works in the structure’s favor

• Available today. No dependency on the CREATE Act, a retroactive extender, or anything else Congress has to do first.
• Lower execution risk on the film. The investor is buying something that exists. There is no production risk, no “will it get finished,” and the appraisal is of a real asset.
• Same savings potential as 181, higher participation. Up to 2x cash in federal tax savings, plus up to 20% of profits versus the 10–15% typical under 181.
• Broader applicability. Catalog acquisitions and distribution-stage deals qualify, which opens the structure to a class of transactions 181 could never touch.

What your advisor will (rightly) push on

• The timing rule is unforgiving. If the film isn’t released in the tax year you need, the deduction moves. Diligence on the release commitment is as important as diligence on the film.
• The note is real. Recourse debt is what makes the full deduction defensible, and it is a genuine liability. Understand the term, the rate, and what happens if revenue falls short.
• Loss-limitation rules still apply. The at-risk rules (§465), the passive activity rules (§469), and the excess business loss limitation (§461(l)) all sit between a large depreciation deduction and your Form 1040. How much of the deduction you can actually use in year one depends on your own facts, which is why we will not quote a number without your CPA in the room.
• States don’t all follow. Several states, Illinois among them, decouple from federal bonus depreciation. The 2x illustration is a federal number; the state picture varies.

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What Your CPA Will Want to See

We structure every 168(k) deal on the assumption that it will be reviewed by a skeptical tax professional, because it should be. The package that goes to your advisor includes:

1. A tax opinion letter from outside counsel covering the applicability of Section 168(k) to the film, the recourse nature of the note under Section 465, the arm’s-length transaction chain, the placed-in-service requirement, and the deductibility of the full purchase price, at a “more likely than not” standard.
2. The independent copyright appraisal establishing fair market value.
3. Chain of title documentation for the film.
4. The promissory note terms — principal, rate, term, and recourse provisions.
5. The Regulation D offering documents.
6. The phantom income management plan, including the tax impound on distribution revenue.

If you would like that package before we ever get on a call, it is available on our CPA Package page. Send it to your advisor first. We would rather answer their questions than yours — theirs are usually better.

Where This Leaves Investors and Filmmakers

For an investor with meaningful 2026 income, a 168(k) film acquisition is the federal film deduction that exists right now, and it comes attached to a real asset with a real release. For a filmmaker with a picture in post and a distribution path, it is a source of completion capital that is actively looking for exactly your situation. The structure’s constraints — the film has to be nearly done, the timing has to be right, the note has to be real — are also what make it work for both sides.

If the CREATE Act passes, Section 181 will come back and we will use it where it fits, most likely for earlier-stage productions. Until then, and quite possibly after, 168(k) is the structure we are building around.

This article is for informational purposes only and does not constitute tax, legal, or investment advice. The example above is hypothetical and does not reflect any actual offering. Results depend on the film’s appraised value, the deal structure, the investor’s tax position, and applicable state law. Prospective investors should consult their own tax and legal advisors. Securities are offered only to accredited investors through offering documents that describe the risks in full.