The Ugly Truth About Section 168(k)

BusinessHollywood & EntertainmentThe Ugly Truth About Section 168(k)BySchuyler Moore,Contributor.Forbes contributors publish independent expert analyses and insights. Partner at Greenberg GluskerFollow AuthorMay 28, 2026, 07:36pm EDT--:-- / --:--This voice experience is generated by AI. Learn more.This voice experience is generated by AI. Learn more.IRS Form 1040Getty Images Internal Revenue Code Section 181 (which permitted a 100% deduction for the first $15 million of the cost of producing a film shot in the U.S.) has expired, but Section 168(k) remains, and it permits a similar deduction but with no dollar limit, although the deduction is deferred until commercial release of the film. While it sounds good on paper, Section 168(k) is worthless as a tax shelter to raise financing for films for the following reasons:1. It is a deduction, not a credit. If you invest $100, your maximum savings is about $40, so it still costs you $60 to make the investment. That might soften the blow if you lose your investment, but no more so than donating $100 to charity.2. If Lady Luck results in the film working and thus return of the investment, the return is fully taxable. Thus, all that Section 168(k) achieves is at best a relatively short deferral of tax, since in most cases the bulk of the film’s income is received in the year of release of the film.3. For individuals, the Section 168(k) deduction can only offset a very narrow category of income, which generally consists of taxable income from real estate (and most real estate investments don’t generate taxable income due to favorable tax rules) and passive interests in businesses held by pass-through entities.4. The deduction is permitted only to the “owner” of the film at the time of release, and the distributor will typically be the “owner” at that time unless it has only a “limited license” of rights. In fact, the only time Section 168(k) “works” to raise financing is when it is used in connection with a tax shelter th...