Reg. § 1.181-4 Special rules.
(a) Recapture
(1) Applicability
(i) In general The requirements of this apply notwithstanding whether an owner has satisfied the revocation requirements of . An owner that claimed a deduction under section for a production in any taxable year in an amount in excess of the amount that would be allowable as a deduction for that year in the absence of section must recapture the excess amount as provided for in of this section for the production in the first taxable year for which—
(A) For any pre-amendment production, the aggregate production costs of the production exceed the applicable aggregate production costs limit under or ;
(B) For any pre-amendment production, the owner no longer reasonably expects (based on all of the facts and circumstances at the end of the current taxable year) that the aggregate production costs of the production will not, at any time, exceed the applicable aggregate production costs limit set forth under or ;
(C) The owner no longer reasonably expects (based on all of the facts and circumstances at the end of the current taxable year) either that the production will be set for production or that the production will be a qualified film or television production; or
(D) The owner revokes the election pursuant to .
(ii) Special rule An owner that claimed a deduction under section and disposes of the production prior to its initial release or broadcast must recapture the entire amount specified under of this section in the year the owner disposes of the production before computing gain or loss from the disposition.
(2) Principal photography not commencing prior to the date of expiration of section 181 If an owner claims a deduction under section for a production for which principal photography does not commence prior to the date of expiration of section , the owner must recapture deductions as provided for in of this section in the owner's taxable year that includes the date of expiration of section .
(3) Amount of recapture An owner subject to the recapture requirements under this section must, for the taxable year in which recapture is required, include in the owner's gross income as ordinary income and add to the owner's adjusted basis in the property—
(i) For a production that is placed in service in a taxable year prior to the taxable year for which recapture is required, the difference between the aggregate amount the owner claimed as a deduction under section for the production for all such prior taxable years and the aggregate depreciation deductions that would have been allowable for the production for such prior taxable years (or that the owner could have elected to deduct in the taxable year that the production was placed in service) for the production under the owner's method of accounting; or
(ii) For a production that has not been placed in service, the aggregate amount claimed as a deduction under section for the production for all such prior taxable years.
(b) Recapture under section 1245 For purposes of recapture under section , any deduction allowed under section is treated as a deduction allowable for amortization.
[T.D. 9551, 76 FR 60728, Sept. 30, 2011]