California Form 3885 - Corporation Depreciation And Amortization - 2011 Page 3
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3qualified property under R&TC Section 24356. The
Exception. Listed property generally does not
Commercial and industrial:
New (useful life 3 yrs. or more) . . . . 150% Declining balance
corporation may only elect IRC Section 179 or the
include:
Used . . . . . . . . . . . . . . . . . . . . . . . . . Straight-line
additional first year expense deduction for the same
• Photographic, phonographic, communication,
Personal property
taxable year. The election must be made on a timely
or video equipment used exclusively in the
New (useful life 3 yrs. or more) . . . . . 200% Declining balance
filed tax return (including extension). The election
corporation’s trade or business.
Used (useful life 3 yrs. or more) . . . . . 150% Declining balance
may not be revoked except with the Franchise Tax
• Any computer or peripheral equipment used
See “Other Consistent Methods” information on
Board‘s consent.
exclusively at a regular business.
page 1.
Part II is also used to calculate depreciation for
• An ambulance, hearse, or vehicle used for
The Class Life ADR System of depreciation may
property (with or without the above elections).
transporting persons or property for hire.
be used for designated classes of assets placed in
Part I Election To Expense Certain Property
Listed property used 50% or less in business activity
service after 1970.
does not qualify for the IRC Section 179 expense
Under IRC Section 179
The Guideline Class Life System of depreciation
deduction. For more information regarding listed
Complete Part I if the corporation elects IRC
may be used for certain classes of assets placed in
property, see the instructions for federal Form 4562.
Section 179 expense. Include all assets qualifying
service before 1971.
for the deduction since the limit applies to all
Line 11
F Election To Expense
qualifying assets as a group rather than to each asset
The total cost the corporation can deduct is limited to
individually. The total IRC Section 179 expense for
the corporation’s business income. For the purpose
Certain Property Under IRC
property, which the election may be made, is figured
of IRC Section 179 election, business income is the
Section 179
on line 5. The amount of IRC Section 179 expense
net income derived from the corporation’s active
deductions for the taxable year cannot exceed the
trade or business, Form 100 or Form 100W, line 18,
For taxable years beginning on or after
corporation’s business income on line 11. See
before the IRC Section 179 expense deduction
January 1, 2005, corporations may elect IRC
the instructions for federal Form 4562 for more
(excluding items not derived from a trade or
Section 179 to expense part or all of the cost of
information.
business actively conducted by the corporation).
depreciable tangible property used in the trade
or business and certain other property described
Line 2
Part II Depreciation and Election of
in federal Publication 946, How to Depreciate
Enter the cost of all IRC Section 179 qualified
Additional First Year Expense
Property. To elect IRC Section 179, the corporation
property placed in service during the taxable year
Deduction Under R&TC
must have purchased property, as defined in the
including the cost of any listed property. See General
Section 24356
IRC Section 179(d)(2), and placed it in service
Information F, Election To Expense Certain Property
Line 14
during the taxable year. If the corporation elects
Under IRC Section 179, for information regarding
Corporations may enter each asset separately or
this deduction, the corporation must reduce the
qualified property. See line 7 instructions for
group assets into depreciation accounts. Figure the
California depreciable basis by the IRC Section 179
information regarding listed property.
depreciation separately for each asset or group of
expense. See the instructions for federal Form 4562,
Line 5
assets. The basis for depreciation is the cost or other
Depreciation and Amortization, for more information.
If line 5 is zero, the corporation cannot elect to
basis reduced by a reasonable salvage value (except
California does not allow IRC Section 179 expense
expense any IRC Section 179 property. Skip line 6
when using the declining balance method), additional
election for off-the-shelf computer software.
through line 11, enter zero on line 12.
first-year depreciation (if applicable), and tax credits
California conforms to the federal changes made to
Line 6
claimed on depreciable property (where specified).
the deduction of business start-up and organizational
Do not include any listed property on line 6. Enter
This may cause the California basis to be different
costs paid or incurred on or after January 1,
the elected IRC Section 179 cost of listed property
from the federal basis.
2005. Exceptions: California does not conform to
on line 7.
If the Guideline Class Life System or Class Life ADR
the federal increase in the deduction for start-up
Column (a) – Description of property. Enter a brief
System is used, enter the total amount from the
expenses in 2010 taxable year.
description of the property the corporation elects to
corporation’s schedule showing the computation on
Limitations. Federal limitation amounts are different
expense.
form FTB 3885, column (g), and identify as such.
than California limitation amounts. For California
Column (b) – Cost (business use only). Enter the
Line 14, Column (h), Additional first-year
purposes, the maximum IRC Section 179 expense
cost of the property. If the corporation acquired
depreciation.
deduction allowed is $25,000. This amount is
the property through a trade-in, do not include any
Corporations may elect to deduct up to 20% of the
reduced if the cost of all IRC Section 179 property
carryover basis of the property traded in. Include
cost of “qualifying property” in the year acquired
placed in service during the taxable year is more
only the excess of the cost of the property over the
in addition to the regular depreciation deduction.
than $200,000. The total IRC Section 179 expense
value of the property traded in.
The maximum additional first-year depreciation
deduction cannot exceed the corporation’s business
deduction is $2,000. Corporations must reduce the
Column (c) – Elected cost. Enter the amount the
income.
basis used for regular depreciation by the amount of
corporation elects to expense. The corporation does
G Amortization
additional first-year depreciation claimed.
not have to expense the entire cost of the property.
California conforms to the IRC Section 197
The corporation can depreciate the amount it does
“Qualifying property” is tangible personal property
used in business and having a useful life of at
amortization of intangibles for taxable years
not expense.
least six years. Land, buildings, and structural
beginning on or after January 1, 1994. Generally,
Line 7
assets that meet the definition under IRC Section 197
components do not qualify. Property converted from
Use a format similar to federal Form 4562, Part V,
personal use, acquired by gift, inheritance, or from
are amortized on a straight-line basis over 15 years.
line 26 to determine the elected IRC Section 179 cost
related parties also does not qualify.
There may be differences in the federal and California
of listed property. Listed property generally includes
amounts for intangible assets acquired in taxable
the following:
See R&TC Section 24356 and the applicable
years beginning prior to January 1, 1994. See R&TC
regulations for more information.
• Passenger automobiles weighing 6,000 pounds or
Section 24355.5 for more information.
An election may be made to expense up to
less.
Amortization of the following assets is governed by
• Any other property used for transportation if the
40% of the cost of property described in
California law:
nature of the property lends itself to personal use,
R&TC Sections 24356.6, 24356.7, and 24356.8.
such as motorcycles, pick-up trucks, SUVs, etc.
For more information, get form FTB 3809, Targeted
Bond premiums
R&TC 24360 – 24363.5
• Any property used for entertainment or
Tax Area Deduction and Credit Summary; form
Research expenditures
R&TC 24365
recreational purposes (such as photographic,
FTB 3805Z, Enterprise Zone Deduction and Credit
Reforestation expenses
R&TC 24372.5
phonographic, communication, and video
Summary; or form FTB 3807, Local Agency Military
Organizational expenditures
R&TC 24407 – 24409
recording equipment).
Base Recovery Area Deduction and Credit Summary.
Start-up expenses
R&TC 24414
• Cellular telephones (and other similar
Other intangible assets may be amortized if it is
Amortization
Part IV
telecommunications equipment). Note: California
approved with reasonable accuracy that the asset
Line 19, Column (e) – R&TC section.
does not conform to the federal exclusion of these
has an ascertainable value that diminishes over time
Enter the correct R&TC section for the type
items from being treated as listed property for
and has a limited useful life.
of amortization. See General Information G,
taxable years beginning on or after January 1,
Amortization, for a list of the R&TC sections.
2010.
Specific Line Instructions
• Computers or peripheral equipment.
For properties placed in service during the taxable
year, the corporation may complete Part I if the
corporation elects to expense qualified property
under IRC Section 179, or Part II if the corporation
elects additional first year expense deduction for
Page 2 FTB 3885 Instructions 2011
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