Section 181 Is Dead. Long Live America’s New Film Incentive?

As Hollywood recalibrates after the expiration of one of independent film’s most familiar
federal tax provisions, Washington is considering something considerably more ambitious:
a national production credit of up to 30% that could fundamentally change the economics
of shooting in the United States.
For more than two decades, Section 181 occupied an unusual place in American independent
film finance. It was not a glamorous incentive. It did not arrive as a check from a film
commission, nor could it be presented as a conventional production rebate. Yet for producers and
investors who understood how to use it, Section 181 of the Internal Revenue Code became an
important part of the financial architecture behind qualifying American film and television
production.
That era has now ended.
Section 181 applies only to qualifying productions commencing on or before December 31, 2025

Productions beginning after that date no longer qualify for its expensing election.
But its expiration is arriving at an extraordinary moment for the American production business.
On September 24, 2026, a bipartisan and bicameral group of lawmakers introduced the Motion
Picture, Television, and Entertainment Revitalization Act, a proposal for something the
United States has conspicuously lacked while competing against the United Kingdom, Canada
and other major production territories: a broad federal production tax credit.
If enacted in its current form, the legislation would establish a 20% federal labor-based tax
credit for qualifying U.S. film and television productions, with available 5% uplifts capable of
bringing the total federal incentive to 30%. Crucially, the proposed federal credit is designed to
supplement state incentives rather than replace them.
The implications could extend far beyond Hollywood.
What Section 181 Actually Did
Section 181 allowed qualifying taxpayers to elect to expense production costs rather than
capitalize them, subject to its statutory limits. For qualifying film and television productions, the
general ceiling was $15 million, increasing to $20 million for certain productions significantly
incurred in designated qualifying areas.
To qualify, at least 75% of the production's total compensation had to constitute qualified
compensation—generally compensation for services performed in the United States by actors,
production personnel, directors and producers.