Section 181 Deduction for Qualified Film & Television Production Costs

From TaxAlmanac

Section 181 Deduction for Qualified Film & Television Production Costs

Can a client who has received K-1’s as a Limited Partner or other LLC member, take a loss of <$78,762.00> his original investment amount on three films under section 181?

Would the member be limited to passive loss? The client has $8800.00 of earned income, (nothing to do with the K-1) $135,000.00 from 1099-R’s early distributions, Code 2.

The Schedule K-1’s show <$50,921.00> in total losses on Part 3, line 1, with nothing entered on Part 3, line 13T or 13U, he wants to use Section 181 to reduce or eliminate his tax liability.

According to the client, he can. I said no, who is right?

Thanks for any help anyone can shed on this. Gene

If the LLC Member didn't materially participate in the making of the film...he is passive. Client can't just necessarily take the amount he invested as a loss -- the $78,762. The flow flue loss reflected on the k-1 should go through two hurdles...1 is the income passive (it appears it is)

2. are there at risk limits (depends how the capital contributions are in proportion to the allocated losses).  

He can and maybe he should elect to use Section 181...really that is an election that occurs at the partnership level...not the indivdiual level.

However, as you mention, there can be passive loss limitations..and he should know that to use these losses he'll need passive income or to dispose of his interest. Good luck, Ira