Most media and entertainment tax teams know that film productions have been eligible for immediate expensing under Section 181 for years. What almost no one in the industry has processed yet is that the OBBBA, signed July 4, 2025, added a completely new category of production to the bonus depreciation regime for the first time: qualified sound recording productions.
On January 14, 2026, the IRS issued Notice 2026-11, Section 5, providing interim guidance on how sound recording productions qualify under amended Section 168(k). The guidance is available to rely on now. Music labels, streaming audio platforms, podcast networks, and concert film producers that commenced qualifying productions in taxable years ending after July 4, 2025, may be able to deduct 100% of the production cost in the year the recording is initially released or broadcast.
This post explains precisely what a qualified sound recording production is, what types of productions qualify, how the placed-in-service concept works for recordings, how the election out functions at the production level, and how Section 181 and Section 168(k) interact after the OBBBA.
What Is a Qualified Sound Recording Production Under the OBBBA?
The statutory definition of a qualified sound recording production comes from OBBBA Section 70434, which amended Section 181 of the Internal Revenue Code to add sound recordings, and then separately amended Section 168(k)(2) to include qualifying sound recordings as eligible property for the additional first year depreciation deduction.
Section 181(f), as added by OBBBA Section 70434(e), defines a qualified sound recording production as a sound recording, as defined in 17 U.S.C. 101, produced and recorded in the United States.
The copyright law definition at 17 U.S.C. 101 is the operative scope of the term. Under that definition, sound recordings are works that result from the fixation of a series of musical, spoken, or other sounds, but not including the sounds accompanying a motion picture or other audiovisual work, regardless of the nature of the material objects, such as discs, tapes, or other phonorecords, in which they are embodied. The exclusion of sounds accompanying a motion picture or other audiovisual work is a meaningful boundary. A song that is recorded as a standalone audio work is a sound recording. The same song recorded as the audio track of a music video is the soundtrack to an audiovisual work and does not fall within the sound recording definition.
For Section 168(k) bonus depreciation eligibility, the production must commence in a taxable year ending after July 4, 2025. Productions that commenced before that date are not eligible under Section 168(k), though a special transition rule described below addresses pre-January 1, 2026, productions in taxable years ending after July 4, 2025.
The production must be produced and recorded in the United States. International co-productions or productions recorded outside the US do not qualify.
What Types of Productions Qualify: Music Recordings, Streaming Audio, Concert Films?
The 17 U.S.C. 101 definition determines which types of productions are in scope, and the answer is broader than traditional music albums.
Music recordings. A standard studio album, a single, an EP, or any other recording of musical performances is the clearest qualifying production. The production costs capitalized under the taxpayer's books for the recording, mixing, mastering, and production of the music are the eligible basis for the Section 168(k) deduction.
Spoken word recordings. The copyright law definition specifically includes spoken sounds in addition to musical sounds. A podcast, an audiobook, a comedy recording, a spoken word album, or a recorded lecture series that results from the fixation of spoken sounds and is produced and recorded in the US qualifies as a sound recording under 17 U.S.C. 101. Streaming audio series distributed in audio-only format fall within this category.
Concert recordings released as standalone audio. A live concert recording released as a standalone audio product qualifies as a sound recording. The key is that it must be a standalone audio release. If the same concert is simultaneously released as a concert film, the audio track accompanying the film would not qualify (because it is the sound accompanying an audiovisual work), but a separate audio-only release of the same performances would qualify independently.
What does not qualify. The explicit exclusion of sounds accompanying a motion picture or other audiovisual work draws a clear boundary. A film score is not a sound recording for these purposes. The audio component of a music video is not a sound recording for these purposes. A podcast episode that is also released as a video episode and the audio is the soundtrack to that video may have a question about whether the audio-only version and the video version are separate works; the safest planning position is to confirm that the audio release is produced as a standalone sound recording independent of any video component.
The Tax Notes analysis of the Notice confirms that production must commence in a taxable year ending after July 4, 2025, for the production to be eligible. A production that was fully completed and in the can before July 4, 2025, does not qualify simply because it was released after that date. The commencement of principal recording must fall in a taxable year ending after that date.
How Is a Sound Recording Production "Placed in Service"?
The placed-in-service concept is where sound recording productions differ most significantly from standard depreciable property under Section 168(k). For ordinary tangible personal property, placed in service means the property is in a condition or state of readiness and availability for a specifically assigned function, which generally corresponds to when the asset is ready and available for use in the business. A machine placed in a factory and available to operate is placed in service.
A sound recording does not work that way. There is no physical asset sitting in a factory awaiting use. The production is an intangible work that exists from completion of recording through the period it is held and then released.
Notice 2026-11 Section 5 resolves this by providing a specific placed-in-service rule for sound recording productions. A qualified sound recording production is considered placed in service at the time of its initial release or broadcast. The Thomson Reuters analysis confirms this: a production is placed in service in the year the recording is released to the public.
The practical effect: the year in which the 100% Section 168(k) deduction is taken is the year of initial release or broadcast, not the year recording commences, not the year recording is completed, and not the year the album or episode is delivered to the distributor. The deduction timing is the release date.
For a music label with a December 31 fiscal year, a completed album whose production costs were capitalized in 2025 and 2026, but which is first released to the public on March 15, 2027, produces the Section 168(k) deduction in the fiscal year ending December 31, 2027.
For streaming platform series that release episodes on a rolling schedule rather than a single release date, the initial release or broadcast of the first episode or the initial release of the production as a whole should be the placed-in-service trigger. Taxpayers with episodic audio series should document the initial release date of each qualifying production clearly.
There is a special transition rule for pre-January 1, 2026 productions. For productions commencing before January 1, 2026, in taxable years ending after July 4, 2025, Notice 2026-11 provides Section 181 deduction treatment of up to $150,000 per taxable year. This is the bridge rule that captures productions that started under the old regime but fall in a taxable year that spans the OBBBA effective date.
What Is the 100% Bonus Depreciation Rate and How Is It Applied?
The OBBBA permanently restored 100% bonus depreciation under Section 168(k) for qualified property acquired and placed in service after January 19, 2025. For qualified sound recording productions, the applicable rate is 100% of the production's cost basis, taken in the year of initial release or broadcast.
The cost basis for the Section 168(k) deduction is the production's depreciable basis as determined under normal tax cost basis rules. This includes all amounts capitalized as part of the production: studio fees, session musician costs, producer fees, recording equipment rental, mixing and mastering costs, and other production-stage costs that are capitalizable under the taxpayer's method of accounting. Distribution costs and marketing costs are generally not part of the production's cost basis for depreciation purposes.
The deduction is taken on the taxpayer's return for the taxable year in which the production is placed in service, meaning the year of initial release or broadcast. No allocation over the production's useful life is required once the Section 168(k) election is in place. The entire cost basis is deducted in year one of the release.
For a calendar-year taxpayer with a $5 million album production cost, the Section 168(k) deduction in the year of release is $5 million, subject to any applicable tax basis limitations. The production's basis is then zero for regular tax purposes. If the album is subsequently sold or licensed, the gain computation uses a zero basis for the production costs that were fully deducted.
The transition year election deserves attention for productions with shorter timelines. For the first taxable year ending after January 19, 2025, a taxpayer could elect a 40% first-year depreciation deduction instead of 100% under Section 168(k)(10). For longer-production-period property and certain aircraft, the election rate is 60%. This election was relevant in 2025 for taxpayers that preferred to manage the timing of large deductions across years. For most sound recording productions, which have production timelines measured in months rather than years, the transition year election is unlikely to be relevant for productions released in 2026 or later.
How Does the Election Out Work for Sound Recording Productions?
Notice 2026-11 provides a specific and important rule for how the election out of bonus depreciation works for sound recording productions.
For most qualified property, the election out under Section 168(k)(7) applies on a class-by-class basis across an entire class of depreciable property. A taxpayer that elects out of bonus depreciation for 5-year property, for example, must do so for all 5-year property placed in service during the taxable year. The election is not available at the asset level for regular depreciable property.
For qualified sound recording productions, Notice 2026-11 provides that the definition of a class of property is each separate production. This means a taxpayer can elect out of bonus depreciation for an individual sound recording production without affecting its election for other productions or for other classes of depreciable property.
BDO confirms this explicitly: for qualified sound recording productions, a taxpayer can elect out of bonus depreciation at the production level. This is a materially more flexible election structure than applies to other qualified property.
The practical implication: a music label with ten albums releasing in a given taxable year can elect 100% bonus depreciation on eight of them and elect out on two, for any reason. State tax planning is the most common motivation for a production-level election out. Many states do not conform to federal bonus depreciation or have lower conformity rates, and a large federal deduction can create unexpected state tax results. The ability to elect out at the production level allows precise management of which productions generate federal deductions in which years.
The election out is made using the procedures under Regulation Section 1.168(k)-2(f)(1). It must be made on the taxpayer's timely filed return (including extensions) for the taxable year in which the production is placed in service.
What Is the Difference Between Section 181 and Section 168(k) for Sound Recordings?
Before the OBBBA, Section 181 was the only accelerated deduction mechanism available for film and television productions. Sound recordings were not within Section 181's scope at all prior to the OBBBA. Understanding the relationship between Section 181 and Section 168(k) after the OBBBA matters for media and entertainment tax teams that have historically used Section 181 for qualifying productions.
Section 181 prior to OBBBA. Section 181, as in effect before amendment by OBBBA Section 70434, allowed taxpayers to elect to deduct up to $15 million of the aggregate production costs of any qualified film, television, or live theatrical production commencing before January 1, 2026. Sound recordings were not mentioned. The $15 million cap was a meaningful limitation for high-budget productions.
Section 181 after OBBBA. OBBBA Section 70434 amended Section 181 in two ways. It added sound recording productions to the definition of qualified productions eligible under Section 181, and it modified the effective dates. For sound recording productions commencing before January 1, 2026, in taxable years ending after July 4, 2025, Section 181 provides deduction treatment of up to $150,000 per taxable year. This $150,000 limit is much lower than the $15 million cap that applies to qualified film and television productions, which is a meaningful restriction for larger music label productions.
Section 168(k) after OBBBA. OBBBA Section 70434(g) amended Section 168(k) to include qualified sound recording productions as qualified property eligible for the additional first year depreciation deduction. The Section 168(k) deduction is unlimited as to cost, applies at 100%, and is taken in the year of initial release or broadcast.
Which one applies and when. For sound recording productions commencing in taxable years ending after July 4, 2025, and beginning on or after January 1, 2026, Section 168(k) is the primary mechanism. The Section 181 transition rule at $150,000 applies to productions commencing before January 1, 2026, in taxable years ending after July 4, 2025. A production commencing January 1, 2026, or later uses Section 168(k), with no dollar cap.
What Cost Basis Is Eligible and What Is Excluded?
The eligible cost basis for the Section 168(k) deduction on a qualified sound recording production is the production's depreciable tax basis. Not every dollar spent in connection with a recording is part of the production's depreciable basis.
Eligible costs generally include: studio recording fees, session musician and vocalist fees (capitalized as part of the recording), record producer fees, sound engineering and mixing fees, mastering fees, equipment rental costs specifically for the recording session, and any other costs that are incurred and capitalized as part of the production of the sound recording.
Costs that are generally not part of the depreciable production basis: marketing and promotion costs, distribution costs, music video production costs (which are a separate asset and may be a different class of property), and costs associated with licensing the recording rights after the recording is complete.
Artist advances and royalty costs. The treatment of artist advances that are recoupable against future royalties is fact-specific and depends on the contractual structure and whether the advance meets the test for a capitalizable cost under the taxpayer's accounting method. Labels that have historically capitalized recoupable advances as production costs and then amortized them should evaluate whether those capitalized advance amounts are part of the production's depreciable basis for Section 168(k) purposes. The general principle is that costs that are capitalized as part of the production under the taxpayer's regular method of accounting form part of the basis eligible for the deduction.
Partnership and pass-through entity issues. Many music label structures involve partnerships, S corporations, or other pass-through entities. The bonus depreciation deduction flows through to the partners or shareholders of those entities. At the entity level, the production's basis is fully deducted in the year of initial release or broadcast. At the partner or shareholder level, the deduction reduces their basis in the entity interest, which affects gain or loss calculations on a future disposition of that interest.
What Should Media and Entertainment CFOs Be Doing Before Year-End?
Four specific actions for media and entertainment CFOs and controllers before the fiscal year-end close.
Inventory the current production slate for qualifying sound recordings. Identify every production that commenced in the current taxable year or in prior taxable years whose initial release date falls in the current taxable year. For each qualifying production, determine the capitalized cost basis that constitutes the depreciable basis for Section 168(k) purposes.
Confirm commencement dates and release dates in writing. Notice 2026-11 defines principal recording commencement as the acquisition date for sound recording productions. The date that principal recording commences is the date the production is treated as acquired. That date must fall in a taxable year ending after July 4, 2025. For any production where the commencement date is in question, contemporaneous documentation (session booking records, studio contracts, musician engagement agreements) should be assembled now.
Evaluate the election-out decision at the production level. For each qualifying production that will be placed in service (initially released) in the current taxable year, evaluate whether taking the 100% deduction is optimal given the company's current-year taxable income position, any applicable Section 163(j) interest limitation constraints, state tax conformity in the company's material states, and whether any alternative minimum tax or CAMT considerations apply. The election out at the production level gives significant flexibility to manage these factors.
Update the tax provision and footnote. The Section 168(k) deduction for qualified sound recording productions affects the company's current-year estimated tax calculation and the Q3 and Q4 provision estimates. If a large production is releasing in Q4, the production-level deduction should be included in the updated annual effective tax rate calculation and reflected in the Q3 estimated tax payment. The income tax footnote should identify the accounting policy for bonus depreciation on sound recording productions and disclose the production-level deduction amounts where material.
Frequently Asked Questions
What is a qualified sound recording production?
A qualified sound recording production is a sound recording as defined in 17 U.S.C. 101, meaning a work resulting from the fixation of a series of musical, spoken, or other sounds, not including sounds accompanying a motion picture or other audiovisual work, that is produced and recorded in the United States. The OBBBA added this as a new category of qualified property eligible for 100% bonus depreciation under Section 168(k), effective for productions commencing in taxable years ending after July 4, 2025. IRS Notice 2026-11, issued January 14, 2026, provides interim guidance on the applicable rules.
Can a music label claim 100% bonus depreciation on recordings?
Yes, for qualifying productions. A music label that commences principal recording of an album in a taxable year ending after July 4, 2025, produced and recorded in the United States, may deduct 100% of the album's capitalized production cost basis in the taxable year in which the album is initially released or broadcast. The label must not have elected out of bonus depreciation for that specific production.
Does a podcast or streaming audio series qualify?
Potentially yes. A podcast or streaming audio series that consists of spoken word recordings, produced and recorded in the United States, and distributed in audio-only format falls within the 17 U.S.C. 101 definition of a sound recording. Productions distributed simultaneously as a video format where the audio is the soundtrack to the video component may not qualify, because the copyright definition excludes sounds accompanying an audiovisual work. Audio-only releases of spoken word content produced in the US qualify.
When is a sound recording production "placed in service"?
Under Notice 2026-11, a qualified sound recording production is considered placed in service at the time of its initial release or broadcast. This is the date on which the 100% Section 168(k) deduction is taken. The year of initial release, not the year recording is completed, determines which taxable year receives the deduction.
What is the difference between Section 181 and Section 168(k) for sound recordings?
Section 181 was amended by the OBBBA to add sound recording productions as qualifying productions, but only with a $150,000 per-year deduction limit for productions commencing before January 1, 2026, in taxable years ending after July 4, 2025. Section 168(k) has no dollar cap and applies at 100% for qualifying productions commencing in taxable years ending after July 4, 2025. For productions commencing January 1, 2026 or later, Section 168(k) is the primary deduction mechanism.
Key Takeaways
- OBBBA Section 70434, effective for taxable years ending after July 4, 2025, added qualified sound recording productions as a new category of qualified property eligible for 100% bonus depreciation under Section 168(k). IRS Notice 2026-11, issued January 14, 2026, provides interim guidance that taxpayers can rely on until proposed regulations are issued.
- A qualified sound recording production is a sound recording under 17 U.S.C. 101, including musical recordings, spoken word recordings, and audio-only series, produced and recorded in the United States. Sounds accompanying a motion picture or audiovisual work are excluded.
- A sound recording production is placed in service at the time of its initial release or broadcast. The 100% deduction is taken in the year of initial release, not the year recording commences or is completed.
- Unlike ordinary depreciable property, where the election out of bonus depreciation applies on a class-by-class basis, the election out for sound recording productions applies at the individual production level. A taxpayer can elect 100% bonus depreciation on some productions and elect out on others in the same taxable year.
- Section 181, as amended by the OBBBA, provides a $150,000 per-year deduction limit for sound recording productions commencing before January 1, 2026, in taxable years ending after July 4, 2025. Section 168(k) is the primary mechanism for productions commencing on or after January 1, 2026, with no dollar cap.
- Eligible cost basis includes capitalized production costs: studio fees, session musician fees, producer fees, engineering, mixing, and mastering. Marketing, distribution, and music video production costs are not part of the sound recording's depreciable production basis.
- Media and entertainment CFOs should inventory the current production slate, confirm commencement and release dates, evaluate the production-level election-out decision, and update the tax provision to reflect qualifying productions releasing in the current taxable year.
