Now that Section 181 expired for productions commencing after December 31, 2025, film producers deduct production costs in 2026 primarily through 100% bonus depreciation under Section 168(k). The immediate, upfront expensing that Section 181 offered during production is gone for new projects. In its place, producers capitalize qualified production costs and recover them when the film or television project is placed in service, meaning when it is first released or broadcast. Bonus depreciation now stands at 100% and is permanent for qualified property acquired after January 19, 2025, which softens the loss of Section 181 but changes the timing of the deduction.
This shift matters because timing drives film financing. Understanding the new rules helps producers, investors, and their advisors plan the 2026 slate with accurate expectations.
What Section 181 Did and Why Its Expiration Matters
Section 181 allowed the owner of a qualified film, television, or live theatrical production to elect to currently deduct production costs as those costs were incurred. The election covered up to $15 million of aggregate production costs, or up to $20 million for productions in certain low-income communities or distressed areas. For qualifying projects, this meant deductions during the production phase rather than years later.
That timing was the core benefit. Producers and investors could offset income in the year money was spent, which improved cash flow and made equity investment more attractive. The provision was designed to keep film and television work in the United States by requiring that a substantial portion of compensation go to services performed domestically.
Section 181 has been extended repeatedly since 2004, usually in short windows tied to broader tax legislation. Its most recent authorization applied to productions commencing before January 1, 2026. Congress did not renew it before that deadline, so the election is no longer available for new productions.
The statutory text remains in the code, but the operative dates control eligibility. You can review the current language at 26 U.S. Code Section 181 on the Legal Information Institute. Costs incurred before 2026 on qualifying productions may still be deducted under the prior rules, which is why the commencement date of each project is the first fact any advisor should confirm.
Did the One Big Beautiful Bill Act Extend Section 181?
No. The One Big Beautiful Bill Act (OBBBA), enacted on July 4, 2025, did not extend the Section 181 sunset for film and television productions. Many in the industry expected an extension, and legislation such as the CREATE Act was introduced to push the deadline out. None of those extension proposals became law before the provision lapsed.
There is one nuance worth flagging carefully. OBBBA did amend Section 181 in a narrow way. Section 70434 of the Act added qualified sound recording productions as a new category eligible for expensing, capped at $150,000. That $150,000 limit applies both to any single qualified sound recording production and, on a cumulative basis, to all such productions in the same taxable year. The change applies to productions commencing before January 1, 2026 in taxable years ending after July 4, 2025, and it does not revive or extend the film and television benefit that expired at the end of 2025. For film and television producers, the practical answer is that the tool they relied on is gone.
The distinction is important for accurate planning. A music or sound recording client may still have a Section 181 pathway under the OBBBA amendment, while a film or television client generally does not. You can review the text and status of the legislation through Congress.gov. Producers should not assume the sound recording change helps a film slate.
Deducting Film Costs Now That Section 181 Expired
With the election unavailable, the default treatment applies. Production costs are capitalized and recovered when the property is placed in service. For a film or television project, placed in service generally means the initial release or broadcast. This is the central change in timing that every producer should build into a 2026 budget.
The primary recovery mechanism now is bonus depreciation under Section 168(k). OBBBA made 100% bonus depreciation permanent for qualified property acquired after January 19, 2025 and placed in service after that date. This reversed the phasedown from the Tax Cuts and Jobs Act, which had been dropping the bonus rate toward zero. A film master can qualify as property eligible for bonus depreciation, which lets a producer expense the full cost in the year of release rather than deducting it as production spending occurs.
The trade-off is timing, not the total deduction. Under Section 181, deductions happened during production. Under Section 168(k), the deduction lands in the year the project is placed in service. A film that shoots in 2026 but releases in 2027 generates its deduction in 2027 under bonus depreciation, whereas Section 181 would have allowed deductions in 2026. Bonus depreciation also carries no dollar cap, unlike the $15 million and $20 million limits under Section 181, which can benefit larger productions.
Where bonus depreciation does not apply, or for taxpayers such as certain investors who do not own the property outright, costs are recovered under the income forecast method of Section 167(g). That method spreads deductions across the income the production earns, generally over a period tied to projected receipts. The income forecast method is slower and less certain than bonus depreciation, so ownership structure and who holds the copyright matter more than ever.
Producers should also remember that federal treatment is only one layer. State film tax credits remain active in many jurisdictions and operate independently of Section 181. Those credits often deliver more value than the federal timing benefit ever did, and they deserve close attention in 2026 planning. Our team works through both federal and state considerations for entertainment clients, and you can read more on our motion picture industry page.
Planning Steps for the 2026 Production Slate
Start by dating every project. Confirm whether principal activities commenced before January 1, 2026, because pre-2026 qualifying costs may still fall under Section 181. Projects that commenced in time can retain the older treatment for costs incurred under the prior rules, while genuinely new 2026 productions cannot.
Model the timing difference. Compare the year deductions would have landed under Section 181 against the placed-in-service year under Section 168(k). For projects with a long gap between production and release, that difference can move a large deduction into a later tax year and affect investor returns.
Revisit financing documents and investor projections. Deals that were pitched on the assumption of current expensing may need revised tax modeling. Investors expecting deductions in the spending year should understand that bonus depreciation ties the deduction to release. Our overview of the firm’s dedicated film tax credits practice explains how we support these conversations.
Coordinate the federal deduction with entity structure and state incentives. Because the deduction now lands in the placed-in-service year, the entity that owns the film master at release controls when and where the deduction is claimed. Producers who move a project between production companies, or who assign copyright before release, can inadvertently shift the deduction to a party that cannot use it. Confirm ownership at the point of release, not just at the point of spending.
Finally, keep documentation clean. Bonus depreciation and the income forecast method both depend on accurate cost capitalization and a defensible placed-in-service date. Auditors and the IRS will look for a clear record of what was spent, when the master was completed, and when the project first reached an audience. Strong production accounting is what makes these deductions hold up, a theme we covered in our look at production accounting after the Hollywood strikes.
Frequently Asked Questions
Is Section 181 gone permanently?
Section 181 expired for film and television productions commencing after December 31, 2025, but it is not repealed from the code. Congress could reinstate or extend it in future legislation, and bills to do so have been introduced. Until that happens, the election is unavailable for new film and television productions.
Can I still use Section 181 for a project that started in 2025?
Possibly. Productions that commenced before January 1, 2026 and meet the requirements may still deduct qualifying costs incurred before 2026 under the prior rules. The commencement date and the timing of each cost are what determine eligibility, so document these carefully with your advisor.
What replaces Section 181 for 2026 film productions?
The main replacement is 100% bonus depreciation under Section 168(k), which OBBBA made permanent for qualified property acquired after January 19, 2025. The deduction is claimed in the year the production is placed in service, meaning when it is released or broadcast, rather than during production.
Is bonus depreciation better or worse than Section 181?
It depends on timing. Bonus depreciation has no dollar cap, which helps large productions, but the deduction is delayed until release rather than taken during production. Section 181 delivered the deduction earlier, which was often more valuable for cash flow and investor structuring.
Did OBBBA change Section 181 at all?
Yes, but narrowly. OBBBA added qualified sound recording productions as a new eligible category, capped at $150,000 both per production and cumulatively across all such productions in a taxable year, for productions commencing before January 1, 2026. It did not extend the film and television benefit, which still expired at the end of 2025.
How do investors who do not own the production recover their costs?
Investors without direct ownership of the property generally recover costs under the income forecast method of Section 167(g), which spreads deductions across the income the production earns over time. This is typically slower than bonus depreciation, so ownership and copyright structure should be reviewed early.
