Film Production Costs

I was able to determine that income forecast or straight line were the only acceptable methods this is correct under older rules..but how about bonus depreciation...not supposed to do the bonus depreciation until you are out there trying to earn $ from the film

most people just use the income forecast method if they didn't or couldn't elect section 181 in the initial year or they didn't take bonus depreciation..also consider the state....see what they accept as well

on alot of small films after a few years, you depreciate the rest of the film if no further income is anticipated.....but i think you always need something in the numerator (revenue) to depreciate in full in any year for inc forecast method....can have your friend pay $10 to see the film if need some income.

I forgot about bonus deprec. Thanks.

noteworthy..some states will decouple from the bonus depreciation

so you use the bonus depreciation at the federal; but than at the state you may be stuck with income forecast method presuming the state is ok with htat method...

https://www.forbes.com/sites/schuylermo ... fbce55d651

The deduction is permitted only upon the first commercial exhibition of the film or program, rather than as production costs are incurred;

Sec 168(k)(2)(a)(i) -

(IV) which is a qualified film or television production (as defined in subsection (d) of section 181) for which a deduction would have been allowable under section 181 without regard to subsections (a)(2) and (g) of such section or this subsection,

Client and I have agreed that the film will likely trickle in income over 7 years, counting 2021 as the "starting year".

Depreciation/Amortization would be in excess of $60k/year at 7 year straight line.

It is VERY unlikely the film will ever produce more than that in any single year.

I don't like the unknowns as far as the income forecast method, and the gigantic loss it could create in any single year, or no loss at all if the film produces no income in any given year.

Am I crazy for wanting to keep this as simple as possible?

very few use the straight line

not saying you can't but few do

also your useful life you choose can be a little difficult.

let's say there is no income after year 3...is the useful life really 7 years?

With the income forecast, you could hold off filing until

a. you get some income in the following year (relevant bc then you know you'll have income to depreciate in the foll year)
b. wait till around the deadline extgension...if there's no income, then perhaps you depreciate in full for the yera you are preparing

as for red flag concerns - taking a sizable loss for 7 yeras could be more of a red flag than taking one big deduciton under income forecast

i personally never worry about red flags; most independent films lose money.....secnodly, if it's legit there's nothing to be concenred wtih. only advantage with s'l is that the losses will eat away at income in the higher brackets, but it'll take several years,

as for red flag concerns - taking a sizable loss for 7 yeras could be more of a red flag than taking one big deduciton under income forecast

Do you mean "bonus"?

i wasn't even thinking bonus....but you are right...Bonus (for federal) would be big write-off in one year. INcome forecast sounds like it'll be 2-3 years for you to write off in full. That could work better if the loss will skim away at income in a higher bracket. Then again , Bonus may produce NOL, but i'm not so sure on new nol rules).....need to look up for NY, what your optinos are to depreciate