From film and television to music and theater businesses, the entertainment industry can now take advantage of expanded deductions designed to speed up cost recovery and strengthen cash flow under the One Big Beautiful Bill Act (OBBBA). The OBBBA, H.R. 1, P.L. 119-21, broadens the bonus depreciation framework and expands §181 to cover qualified sound recording productions, both of which can help entertainment businesses recover costs faster.

 

§168(K) – 100% BONUS DEPRECIATION FOR QUALIFIED PRODUCTION PROPERTY

What Changed

The OBBBA consolidated the benefits previously available under §181 into the broader §168(k) bonus depreciation framework. This means that categories of productions that once required a separate §181 election — including film, television, live theatrical and sound recording productions — are now fully eligible for 100% bonus depreciation under §168(k).

Qualified Property Now Includes:

  • Qualified film and television productions (meeting the 75% U.S. compensation test under §181(d))
  • Qualified live theatrical productions (meeting the 75% U.S. compensation test and the venue with less than 3,000 audience capacity rule under §181(e))
  • Qualified sound recording productions (albums, soundtracks, podcasts and similar projects, as defined under §181(f))
  • Tangible production assets, such as:
    • Lighting and camera equipment
    • Sound and stage equipment
    • Furniture and fixtures for production
    • Purchased post-production software and tools
    • Qualified Improvement Property (QIP) for leased spaces

Key Benefits for Producers and Investors

  • No dollar limitation: Unlike §181, which capped deductions at $15 million ($20 million in certain areas), §168(k) imposes no cap
  • New or used property eligible: As long as it is the taxpayer’s first use, used production equipment can qualify
  • Permanent integration: While §181 was always subject to sunset dates, §168(k) establishes a more consistent framework for accelerated deductions

Timing Rules

  • To qualify for 100% bonus depreciation, property must be acquired and placed in service after Jan. 19, 2025
  • If a binding contract was signed before Jan. 20, 2025, prior phase-out rules apply
  • The deduction is taken in the year the property is placed in service, not as costs are incurred

Ownership Considerations

A key distinction remains between §181 and §168(k):

  • Under §181, costs could be deducted as incurred by the producer
  • Under §168(k), deductions generally apply at the time of commercial release and are available to the owner of the production at that time

This creates potential challenges for independent films or projects with multiple distributors. For example, if domestic rights are licensed to one party and foreign rights to another, the IRS may challenge whether either party qualifies as the true “owner.” Careful structuring is required to preserve eligibility.

 

§181 EXPANSION – SOUND RECORDING PRODUCTIONS

Although the 2025 H.R. 1 consolidated much of §181 into §168(k), it also expanded §181 to cover qualified sound recording productions. This includes albums, soundtracks and podcasts intended for commercial release.

Key Features

  • Up to $150,000 per year of qualified recording costs may be deducted
  • The overall cap for §181 remains $15 million per production ($20 million in certain designated areas)
  • Productions must be produced and recorded in the U.S.
  • Applies to productions commencing in tax years ending after July 4, 2025

Expiration Warning

Despite this expansion, §181 remains temporary. Unless extended, it will expire for productions beginning after Dec. 31, 2025. Companies should act quickly to take advantage of this benefit.

 

OVERTIME PAY DEDUCTION

Another provision of the OBBBA provides a temporary deduction for certain overtime wages:

  • Available for tax years 2025 through 2028
  • Limited to $12,500 per year (single filers) or $25,000 (joint filers)
  • Phased out for high-income taxpayers ($150,000 for single/$300,000 for joint)
  • Applies only to federally required overtime wages (e.g., hours exceeding 40 per week under FLSA rules), not union-related penalty payments

This offers targeted relief for employers managing large production crews, though many union-specific penalties will not qualify.

 

NO TARIFFS UNDER THE BILL

The bill stated that no final decisions have been made on a proposed 100% tariff on movies made outside the U.S. It is doubtful that it will be implemented due to its potential economic and legal challenges.

 

PLANNING STRATEGIES FOR ENTERTAINMENT COMPANIES

  • Time Productions Strategically: Align acquisition and service dates with eligibility windows for §168(k) and §181
  • Use Cost Segregation Studies: Identify and separate qualifying production assets from administrative or non-qualifying spaces
  • Bundle Smaller Projects: Combine sound recording projects within the same year to maximize the $150,000 annual deduction
  • Leverage State Incentives: Layer federal deductions with state-level production credits to multiply benefits
  • Plan for Long-term Use: To avoid depreciation recapture under §1245, ensure that facilities remain dedicated to qualified production use for at least 10 years

 

BOTTOM LINE

The 2025 OBBBA’s updates to §168(k) and §181 provide powerful tools for entertainment companies to accelerate deductions and reinvest in creative projects. However, these provisions are highly technical, and in some cases, time sensitive. Success will depend on early planning, precise structuring and careful documentation.

GHJ specializes in helping production companies, studios and music businesses maximize these incentives while managing compliance risks. Get in touch with the team to learn more.