California Form 3885 - Corporation Depreciation And Amortization

The Class Life ADR System of depreciation may

Part I Election To Expense Certain Property

Line 11

be used for designated classes of assets placed in

The total cost the corporation can deduct is limited to

Under IRC Section 179

service after 1970.

the corporation’s business income. For the purpose

Complete Part I if the corporation elects IRC

of IRC Section 179 election, business income is the

Section 179 expense. Include all assets qualifying

The Guideline Class Life System of depreciation

net income derived from the corporation’s active

for the deduction since the limit applies to all

may be used for certain classes of assets placed in

trade or business, Form 100 or Form 100W, line 17,

qualifying assets as a group rather than to each asset

service before 1971.

before the IRC Section 179 expense deduction

individually. The total IRC Section 179 expense for

F Election To Expense Certain

(excluding items not derived from a trade or

property, for which the election may be made, is

business actively conducted by the corporation).

Property Under IRC Section 179

figured on line 5. The amount of IRC Section 179

expense deductions for the taxable year cannot

Part II Depreciation and Election of

For taxable years beginning on or after

exceed the corporation’s business income on line 11.

Additional First Year Expense

January 1, 2005, corporations may elect IRC

See the instructions for federal Form 4562 for more

Section 179 to expense part or all of the cost of

Deduction Under R&TC

information.

depreciable tangible property used in the trade or

Section 24356

Line 2

business and certain other property described in

Line 14

Enter the cost of all IRC Section 179 qualified

federal Publication 946, How to Depreciate Property.

Corporations may enter each asset separately or

property placed in service during the taxable year

To elect IRC Section 179, the corporation must

group assets into depreciation accounts. Figure the

including the cost of any listed property. See General

have purchased property, as defined in the IRC

depreciation separately for each asset or group of

Information F, Election To Expense Certain Property

Section 179(d)(2), and placed it in service during

assets. The basis for depreciation is the cost or other

Under IRC Section 179, for information regarding

the taxable year. If the corporation elects this

basis reduced by a reasonable salvage value (except

qualified property. See line 7 instructions for

deduction, the corporation must reduce the California

when using the declining balance method), additional

information regarding listed property.

depreciable basis by the IRC Section 179 expense.

first-year depreciation (if applicable), and tax credits

The total IRC Section 179 expense deduction cannot

Line 5

claimed on depreciable property (where specified).

exceed the corporation’s business income. See the

If line 5 is zero, the corporation cannot elect to

This may cause the California basis to be different

instructions for federal Form 4562, Depreciation and

expense any IRC Section 179 property. Skip line 6

from the federal basis.

Amortization, for more information.

through line 11, enter zero on line 12.

If the Guideline Class Life System or Class Life ADR

California does not allow IRC Section 179 expense

Line 6

System is used, enter the total amount from the

election for off-the-shelf computer software.

Do not include any listed property on line 6. Enter

corporation’s schedule showing the computation on

the elected IRC Section 179 cost of listed property

form FTB 3885, column (g), and identify as such.

California conforms to the federal changes made to

on line 7.

the deduction of business start-up and organizational

Line 14, Column (h), Additional first-year

costs paid or incurred on or after January 1, 2005.

Column (a) – Description of property. Enter a brief

depreciation.

Exceptions: California does not conform to the

description of the property the corporation elects to

Corporations may elect to deduct up to 20% of the

federal increase in the deduction for start-up

expense.

cost of “qualifying property” in the year acquired

expenses in 2010 taxable year.

in addition to the regular depreciation deduction.

Column (b) – Cost (business use only). Enter the

The maximum additional first-year depreciation

California law does not conform to the federal

cost of the property. If the corporation acquired

limitation amounts under IRC Section 179(b) (1)

deduction is $2,000. Corporations must reduce the

the property through a trade-in, do not include any

basis used for regular depreciation by the amount of

& (2). For California purposes, the maximum IRC

carryover basis of the property traded in. Include

additional first-year depreciation claimed.

Section 179 expense deduction allowed is $25,000.

only the excess of the cost of the property over the

This amount is reduced if the cost of all IRC

value of the property traded in.

“Qualifying property” is tangible personal property

Section 179 property placed in service during the

used in business and having a useful life of at

Column (c) – Elected cost. Enter the amount the

taxable year is more than $200,000.

least six years. Land, buildings, and structural

corporation elects to expense. The corporation does

components do not qualify. Property converted from

G Amortization

not have to expense the entire cost of the property.

personal use, acquired by gift, inheritance, or from

The corporation can depreciate the amount it does

California conforms to the IRC Section 197

related parties also does not qualify.

not expense.

amortization of intangibles for taxable years

See R&TC Section 24356 and the applicable

beginning on or after January 1, 1994. Generally,

Line 7

regulations for more information.

assets that meet the definition under IRC Section 197

Use a format similar to federal Form 4562, Part V,

are amortized on a straight-line basis over 15 years.

line 26 to determine the elected IRC Section 179 cost

Amortization

Part IV

There may be differences in the federal and California

of listed property. Listed property generally includes

Line 19, Column (e) – R&TC section.

amounts for intangible assets acquired in taxable

the following:

Enter the correct R&TC section for the type

years beginning prior to January 1, 1994. See R&TC

of amortization. See General Information G,

• Passenger automobiles weighing 6,000 pounds or

Section 24355.5 for more information.

Amortization, for a list of the R&TC sections.

less.

Amortization of the following assets is governed by

• Any other property used for transportation if the

California law:

nature of the property lends itself to personal use,

such as motorcycles, pick-up trucks, SUVs, etc.

Bond premiums

R&TC 24360 – 24363.5

• Any property used for entertainment or

Research expenditures

R&TC 24365

recreational purposes (such as photographic,

Reforestation expenses

R&TC 24372.5

phonographic, communication, and video

Organizational expenditures

R&TC 24407 – 24409

recording equipment).

Start-up expenses

R&TC 24414

• Cellular telephones (and other similar

Other intangible assets may be amortized if it is

telecommunications equipment). Note: California

approved with reasonable accuracy that the asset

does not conform to the federal exclusion of these

has an ascertainable value that diminishes over time

items from being treated as listed property for

and has a limited useful life.

taxable years beginning on or after January 1,

2010.

Specific Line Instructions

• Computers or peripheral equipment.

For properties placed in service during the taxable

Exception. Listed property generally does not

year, the corporation may complete Part I if the

include:

corporation elects to expense qualified property

• Photographic, phonographic, communication,

under IRC Section 179, or Part II if the corporation

or video equipment used exclusively in the

elects additional first year expense deduction for

corporation’s trade or business.

qualified property under R&TC Section 24356. The

• Any computer or peripheral equipment used

corporation may only elect IRC Section 179 or the

exclusively at a regular business.

additional first year expense deduction for the same

• An ambulance, hearse, or vehicle used for

taxable year. The election must be made on a timely

transporting persons or property for hire.

filed tax return (including extension). The election

Listed property used 50% or less in business activity

may not be revoked except with the Franchise Tax

does not qualify for the IRC Section 179 expense

Board‘s consent.

deduction. For more information regarding listed

Part II is also used to calculate depreciation for

property, see the instructions for federal Form 4562.

property (with or without the above elections).

Page 2 FTB 3885 Instructions 2014

California Form 3885 - Corporation Depreciation And Amortization - 2014 Page 3

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