Form 3885 - Corporation Depreciation And Amortization - 1998 Page 2
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California bank and corporation tax law has not
Office furniture, fixtures, machines
January 1, 1994. See R&TC Section 24355.5 for
conformed to the federal special class life for gas
and equipment . . . . . . . . . . . . .
10 yrs.
more information.
station convenience stores and similar structures;
This category includes furniture and fixtures (that
Amortization of the following assets is governed by
•
California law allows additional first-year depreci-
are not structural components of a building) and
California law:
ation under R&TC Section 24356, rather than
machines and equipment used in the preparation
Bond premiums
R&TC 24360 – 24363
IRC Section 179;
of papers or data.
•
Research expenditures
R&TC 24365
California has not conformed to federal statutes
Examples include: desks; files; safes; typewrit-
Reforestation expenses
R&TC 24372.5
allowing depreciation under Modified Accelerated
ers; accounting, calculating and data processing
Leased property improvements
R&TC 24373
Cost Recovery System (MACRS) for corpora-
machines; communications equipment; and dupli-
Organizational expenditures
R&TC 24407 – 24409
tions, except to the extent such depreciation is
cating and copying equipment.
Start-up expenses
R&TC 24414
passed through from a partnership;
•
•
Computers and peripheral
Other intangible assets may be amortized if it is
California has adopted provisions of the federal
equipment (printers etc.) . . . . . . . . .
6 yrs.
proved with reasonable accuracy that the asset has
Class Life Asset Depreciation Range System
•
an ascertainable value that diminishes over time and
(ADR), which specifies a useful life for various
Transportation equipment,
has a limited useful life.
types of property. However, California law does
automobiles (including taxis). . . . . . .
3 yrs.
not allow the federal provision that enables a
General-purpose trucks:
corporation to choose a depreciation period that
Specific Line Instructions
Light (unloaded weight less
varies from the specified asset guideline system.
than 13,000 lbs.). . . . . . . . . . . . .
4 yrs.
Heavy (unloaded weight
Line 1
B Depreciation Calculation
13,000 lbs. or more) . . . . . . . . . . .
6 yrs.
Corporations may enter each asset separately or
•
Methods
group assets into depreciation accounts. Figure the
Buildings
depreciation separately for each asset or group of
This category includes the structural shell of a
For depreciation methods, refer to R&TC
assets. The basis for depreciation is the cost or
building and all of its integral parts that service
Sections 24349 through 24354.
other basis reduced by a reasonable salvage value
normal heating, plumbing, air conditioning, fire
R&TC Section 24349 describes the methods to use
(except when using the declining balance method),
prevention and power requirements and equip-
for calculating depreciation:
additional first-year depreciation (if it applies) and tax
ment such as elevators and escalators.
Straight-Line. The straight-line method divides the
credits claimed on depreciable property (where
Type of building:
specified). This may cause the California basis to be
cost or other basis of property, less its estimated sal-
Apartments . . . . . . . . . . . . . .
40 yrs.
different from the federal basis.
vage value, into equal amounts over the estimated
Dwellings (including rental
useful life of the property. An asset may not be
If the Guideline Class Life System or Class Life ADR
residences) . . . . . . . . . . . . . .
45 yrs.
depreciated below a reasonable salvage value.
System is used, enter the amount, from a schedule
Office buildings . . . . . . . . . . . .
45 yrs.
showing the computation, on form FTB 3885,
Declining Balance. Under this method, depreciation
Warehouses . . . . . . . . . . . . . .
60 yrs.
column (g), and identify as such.
is greatest in the first year and smaller in each suc-
D Depreciation Method to Use
ceeding year. The property must have a useful life of
Line 1, Column (h),
at least three years. Salvage value is not taken into
Additional first-year depreciation
Corporations may use the straight-line method for
account in determining the basis of the property, but
Corporations may deduct up to 20% of the cost of
any depreciable property. Before using other
the property may not be depreciated below a rea-
‘‘qualifying property’’ in the year acquired, in addition
methods, consider the kind of property, its useful life,
sonable salvage value.
to the regular depreciation deduction. The maximum
whether it is new or used and the date it was
The amount of depreciation for each year is sub-
additional first-year depreciation deduction is $2,000.
acquired. Use the following chart as a general guide
tracted from the basis of the property and a uniform
Corporations must reduce the basis used for regular
to determine which method to use.
rate of up to 200% of the straight-line rate is applied
depreciation by the amount of additional first-year
Maximum
to the resulting balance.
depreciation claimed.
Property description
depreciation method
For example the annual depreciation allowances for
‘‘Qualifying property’’ is tangible personal property
Real estate acquired 12/31/70 or earlier
property with an original basis of $100,000 are:
• New (useful life 3 yrs. or more) . . . .
used in business and having a useful life of at least
200% Declining balance
• Used (useful life 3 yrs. or more) . . .
150% Declining balance
six years. Land, buildings and structural components
Declining-
do not qualify. Property converted from personal
Remaining
balance
Depreciation
Real estate acquired 1/1/71 or later
• Residential Rental:
use, acquired by gift, inheritance or from related par-
Year
basis
rate
allowance
New . . . . . . . . . . . . . . .
200% Declining balance
ties also does not qualify.
First . . . . .
$100,000
20%
$20,000
Used (useful life 20 yrs. or more) . . .
125% Declining balance
Second . . .
80,000
20%
16,000
See R&TC Section 24356 and the applicable regula-
Used (useful life less than 20 yrs.) . .
Straight-line
Third . . . .
64,000
20%
12,800
• Commercial and industrial:
tions for more information.
Fourth . . . .
51,200
20%
10,240
New (useful life 3 yrs. or more) . . . .
150% Declining balance*
Note: Property described in R&TC Sections 24356.4,
Used . . . . . . . . . . . . . .
Straight-line
24356.5, 24356.7 and 24356.8 qualifies for an
Personal property
Sum-of-the-years-digits method. This method may
expanded expense election. For more information,
• New (useful life 3 yrs. or more) . . . .
200% Declining balance*
be used whenever the declining balance method is
• Used (useful life 3 yrs. or more) . . .
get form FTB 3806, Los Angeles Revitalization Zone
150% Declining balance
allowed. The depreciation deduction is figured by
Deduction and Credit Summary; form FTB 3805Z,
subtracting the salvage value from the cost of the
Enterprise Zone Deduction and Credit Summary;
* Other depreciation methods may be used as long
property and multiplying the result by a fraction. The
form FTB 3807, Local Agency Military Base Recov-
as the total accumulated depreciation at the end of
numerator of the fraction is the number of years
ery Area Deduction and Credit Summary or form
any income year during the first 2/3 of the useful life
remaining in the useful life of the property. There-
FTB 3809, Targeted Tax Area Deduction and Credit
of the property is not more than the amount that
fore, the numerator changes each year as the life of
Summary.
would have resulted from using the declining bal-
the property decreases. The denominator of the frac-
ance method.
tion is the sum of the digits representing the years of
The Guideline Class Life System of depreciation
useful life. The denominator remains constant every
may be used for certain classes of assets placed in
year.
service before 1971.
Other consistent method. Other depreciation meth-
The Class Life ADR System of depreciation may be
ods may be used as long as the total accumulated
used for designated classes of assets placed in
depreciation at the end of any income year during
service after 1970.
the first 2/3 of the useful life of the property is not
more than the amount that would have resulted from
E Amortization
using the declining balance method.
California conformed to the 1993 federal Revenue
C Period of Depreciation
Reconciliation Act (Public Law 103-66) for the IRC
Section 197 amortization of intangibles for income
Use the following information as a guide to
years beginning on or after January 1, 1994. Gener-
determine reasonable periods of useful life for pur-
ally, assets that meet the definition under IRC Sec-
poses of calculating depreciation. Actual facts and
tion 197 are amortized on a straight-line basis over
circumstances will determine useful life. Note,
15 years. There may be differences in the federal
however, that the figures listed below represent the
and California amounts for intangible assets
normal periods of useful life for the types of property
acquired in income years beginning prior to
listed as shown in IRS Rev. Proc. 83-35.
Side 2 FTB 3885 1998
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