Section 181 and the Future of Film Tax Incentives

If you’ve heard an independent investment pitch—or financed an independent feature yourself—at any point in the last 20 years, you’re probably familiar with Section 181.

A vital tool for raising investment and defraying costs, this federal tax code provision helped producers efficiently deduct certain qualified film and television production expenses. And on December 31, 2025, it officially expired. 

In this article, we’ll take a step back to explain what Section 181 was, how Section 168 now fits into the picture, what's known about the possibility of Section 181's return, and where producers should be focusing their attention right now when it comes to incentives.

A quick refresher: what is Section 181?

At a high level, Section 181 allowed taxpayers to deduct certain qualified film and television production costs in the same year that those costs were incurred.

This is different from the traditional method of deducting costs which involves capitalizing costs and depreciating them over time, just as an individual taxpayer might do with, say, an automobile.

Section 181 deductions were advantageous, because they provided the ability to expense potentially millions of dollars sooner rather than later. This materially affected investor returns and film financing structures. Practically speaking, Section 181 incentivized investment, making the risky business of film financing a little more predictable.

Producers could deduct up to $15 million of aggregate production costs incurred before 2026, or up to $20 million for expenses incurred in certain designated distressed areas before 2026.

Projects eligible for Section 181 included film, television, and live theatrical production. Additionally, with the 2025 law known as the One Big Beautiful Bill Act, sound recordings produced in the U.S. were added to the provision and also could qualify for immediate expensing, capped at $150,000 per taxable year.

Section 181 deductions applied to U.S.-based production costs tied to labor and services. At least 75% of the total compensation paid for film and television projects had to be for services performed within the United States for projects to qualify.

In the case of a TV series, only the first 44 episodes were taken into account when calculating Section 181 deductions, and both the cost cap ($15 million or $20 million) and the domestic compensation requirement were determined on an episodic basis.

Finally, beginning the last quarter of 2017, producers were able to favorably claim bonus depreciation. With this change, production costs that were not expensed under Section 181 could be capitalized and depreciated when the project was placed in service, aka released.

While experts argued about how impactful Section 181 truly was for film financing, the fact is, the provision was unquestionably beneficial for producers. We don’t need to delve into the technicalities of tax law to see that a 100% deduction of up to $15 million is better than a gradual depreciation year-by-year. 

With Section 181, filmmakers could save money by working in the US, and that was exactly the point. 

Section 181 was created in 2004 by the American Jobs Creation Act to counter the outflow of U.S. entertainment production to foreign countries. The provision was later expanded in 2008 and repeatedly renewed, including in 2015.

Throughout Section 181’s 20-year run, producers paid close attention to the provision—not because it replaced state incentives, but because it complemented them. It sat at the federal level, independent of geography, and offered a form of tax relief that did not require competing for limited program allocations or navigating state-specific rules.

Now, many producers find themselves asking: Is Section 181 still available? The answer is no, not currently. Section 181 expired on December 31, 2025 and has not yet been reinstated. The next obvious question, then, is…

Is Section 181 coming back?

The short answer: no one knows. Congressional lawmakers introduced the CREATE Act in 2025 to extend Section 181 until 2030. The CREATE Act would also meaningfully strengthen the provision by raising the deduction cap from $15 million to $30 million, with a higher ceiling of $40 million for productions in distressed areas.

However, as of this writing, there has been no action on the CREATE Act since it was introduced in Congress. Thus, Section 181 expired without extension at the end of 2025.

Section 181 could be reintroduced (as it was, or in a new form) at any point, following legislative approval. As of now, however, there is no current federal law that producers can rely on to claim the same Section 181 deductions they did prior to 2026.

There has been ongoing discussion among trade groups, tax professionals, and lawmakers about the role a new federal-level film incentive could play in supporting domestic production. More on that below. But first, producers need to understand what federal tools are actually available right now.

What producers have now: Section 168 bonus depreciation

With Section 181 no longer available, the most significant federal tool producers can turn to is Section 168 of the Internal Revenue Code, specifically what's known as bonus depreciation.

Here is how it works. When a film is completed and released, it is considered, for the purposes of the IRS, “placed in service.” That is the moment when the project starts generating revenue and the tax rules for depreciating it kick in.

Under Section 168, as amended in 2025, bonus depreciation is now permanent and set at 100%. That means a production can deduct its full capitalized cost in the year it is placed in service.

Section 168 also has one important advantage over Section 181: Section 168 has no cap. While productions could deduct, at most, $20 million in costs under Section 181, Section 168 applies to productions of any size, as long as at least 75% of compensation goes to U.S.-based services.

But producers and their tax counsel should understand a key structural difference between the two provisions. Under Section 181, investors could start taking deductions when production costs were first incurred, potentially years before a film was released. Under Section 168, those same investors must wait until the film is placed in service (released) before claiming any deduction.

For the purposes of structuring investor deals and managing cash flow, that timing gap is meaningful. Section 181 was particularly valuable because it provided a tax benefit during the financing and production phase, not after the fact. Section 168 is also valuable, but it is a different tool, and producers need to understand that distinction when structuring deals today.

With projects released in 2026 only, producers can also claim bonus depreciation for 20% of qualified costs as a transitional measure. Consult qualified tax counsel to understand how Section 168 applies to your specific film financing structure.

The future of a federal film incentive

The CREATE Act is not the only legislative effort worth watching. There is also a push for something more ambitious: a true federal film production incentive, one that would function more like the credits offered by Canada or the UK.

Senator Adam Schiff has publicly advocated for a 15% baseline national credit modeled on California's program. That proposal has drawn support from the MPA, IATSE, FilmUSA, the Coalition for American Production, and the Association of Film Commissioners International. The competitive case is straightforward: Canada, the UK, Australia, and dozens of other countries offer national-level incentives covering 30 to 40 percent of production costs. For producers deciding where to shoot, that gap matters.

No bill of that scope has been formally introduced yet. But the coalition is growing, the argument is clear, and the competitive pressure from abroad is making the case harder to ignore. The CREATE Act has bipartisan support in both the House and Senate and has drawn public support from the White House. Neither effort has passed as of this writing.

A federal film incentive, such as a tax credit or rebate, certainly would be a boon for domestic production. Other countries including Australia, Canada, Ireland, and the United Kingdom have found great success with their own national film incentives. But at the moment, the U.S. does not have its own federal film incentive. 

Financing decisions should not be built around Section 181 or assumptions about any yet-to-be-approved incentive's future availability. Such conjecture introduces unnecessary risk into budgets and financial planning.

Pragmatic producers seeking to bolster budgets with production savings should instead look to the multitude of domestic incentives still available.

Other production incentives that are available right now

While Section 181 has expired, incentives remain a core part of film and television financing. The center of gravity has simply shifted. Today, state and regional incentive programs represent the most reliable and impactful tools available to producers.

Across the country, states offer a wide range of tax credits and rebates designed to attract production spending. Some programs provide refundable credits that can generate direct cash refunds, while others issue transferable credits that can be sold to third parties.

Every state and local incentive has its own requirements, including minimum spend thresholds, local labor or residency rules, withholding requirements for loan-outs, and jurisdiction-specific definitions of qualifying costs. The value of a program can vary depending on a project’s size, shooting schedule, and production footprint. 

Which is why it is essential that producers diligently research incentive programs before applying, to determine which incentive is the right fit for their project.  

Navigating state incentives

Producers evaluating state incentives often run into the same challenges. Annual funding allotments and application windows can change year to year. Program guidelines, including what counts as a qualified cost, may refresh with every fiscal calendar. In some cases, publicly available information lags behind program updates, leading to confusion or outdated assumptions.

There’s also the issue of nuance. Incentives that advertise generous percentages may include exclusions, caps, or audit requirements that materially affect their net value. Without careful modeling, it’s easy to overestimate how much an incentive will ultimately deliver or how quickly it can be monetized.

This is why early research and careful planning are so important. Understanding eligibility requirements, audit standards, and compliance obligations upfront can help producers avoid unpleasant surprises later in the process.

Tools and resources that can help

Producers don’t have to navigate this landscape alone. 

State film commissions are always a critical first stop for understanding local programs and current availability. And producers looking for comprehensive, always up-to-date information about every domestic film incentive in the U.S., organized in one place, should look no further than Wrapbook’s Production Incentive Center. 

With Wrapbook’s Production Incentive Center, filmmakers can navigate the domestic film incentive landscape with ease, delve deeply into the benefits and requirements of each state and local film incentive, and ultimately find the right program for their next project. 

The Production Incentive Center’s State Incentive Map charts every state and local film incentive offered across the country. The Incentive Comparison Tool allows producers to dig into how incentives stack up against each other. Even two incentives that initially appear similar can be starkly different when it comes to the fine details.

All in all, Wrapbook’s Production Incentive Center is the ultimate resource for filmmakers who want to stay on top of the latest in domestic film incentives. Pair it with industry-leading incentive expertise, and you’re in good hands when you find significant production savings with U.S.-based film incentives.  

Wrapping up

Section 181 has expired, and its future remains uncertain. While the provision once played a meaningful role in film and television finance, it is not a tool producers can rely on today. In contrast, state and regional incentives are active, evolving, and continuing to shape where and how projects get made.

To stay informed, explore Wrapbook’s Production Incentive Center and join our regular incentive webinars, where we break down current programs, recent changes, and what producers need to know to plan with confidence.