What Form 3885 (2012) Is For
Form 3885 (2012) is used by corporations filing California Form 100 or Form 100W to report depreciation and amortization in accordance with California-specific rules. This form calculates annual deductions for tangible property, such as machinery or vehicles, and intangible assets like patents. Because California does not fully conform to the Internal Revenue Code, businesses must use Form 3885 to adjust their federal depreciation figures and comply with state law.
When You’d Use Form 3885 (2012)
You would use Form 3885 (2012) when your corporation must calculate California-specific depreciation that differs from federal returns.
Original 2012 tax filings
Corporations filing California Form 100 or Form 100W for the 2012 tax year must include Form 3885 to report allowable depreciation and amortization.
Late returns
If your return was filed after the March 15, 2013, deadline, you must use Form 3885 to compute depreciation under California law, even if submitted with penalties.
Amended returns
If you made errors in depreciation or amortization on your original return, submit Form 100X and attach a corrected Form 3885 to update your figures.
IRS audit changes
If the Internal Revenue Service adjusts your depreciation or amortization amounts on federal Form 4562, and those changes affect your California return, you must file an amended state return within six months.
Key Rules or Details for 2012
California’s depreciation and amortization rules for the 2012 tax year differ significantly from federal provisions.
Section 179 expensing limits
While federal tax law allowed up to $500,000 in Section 179 expensing for qualifying property, California limited this deduction to $25,000 and phased it out when purchases exceeded $200,000.
Bonus depreciation exclusion
California did not conform to the federal 50% bonus depreciation under IRC Section 168(k), requiring corporations to remove bonus amounts from their state depreciation calculations.
Depreciation methods
Unlike the federal Modified Accelerated Cost Recovery System, California uses straight-line, declining balance, sum-of-the-years-digits method, or other consistent methods specified in the California Revenue and Taxation Code.
Intangible assets
Amortization for intangible assets is based on IRC Section 197 using the 15-year method, except where California law specifies a different treatment.
Useful lives
California generally follows the Class Life Asset Depreciation Range as outlined in IRS Revenue Procedure 87-56, but provides separate treatment for certain property types, such as allowing a 5-year life for grapevines.
Additional first-year depreciation
California permits a 20% deduction (maximum $2,000) for qualifying property under R&TC Section 24356, but this deduction cannot be used in combination with Section 179 in the same year.
Step-by-Step (High Level)
The process for completing Form 3885 (2012) involves structured steps that align with California tax regulations.
Step 1 – Gather documentation
Collect purchase invoices, placed-in-service dates, cost basis figures, prior-year depreciation schedules, and a copy of your federal Form 4562.
Step 2 – Choose your election
Decide whether to claim IRC Section 179 deductions or California’s additional first-year depreciation; you may not elect both for the same property in the same tax year.
Step 3 – Complete Part I
If electing Section 179, list all qualifying property, calculate the tentative deduction, apply the Section 179 business income limitation, and carry forward any unused amount if applicable.
Step 4 – Complete Part II
For each asset, enter the description, acquisition date, adjusted basis, prior depreciation, selected depreciation method, useful life or rate, and current-year depreciation using California-allowed methods.
Step 5 – Complete Part III
Add your Section 179 and regular depreciation amounts, compare to your federal depreciation, and report the difference on your California corporate tax return as a state adjustment.
Step 6 – Complete Part IV
List intangible assets and apply California-approved amortization methods, typically using a 15-year straight-line approach under IRC Section 197, and adjust for any federal–state variance.
Step 7 – Attach and file
Submit Form FTB 3885 with your Form 100 or Form 100W, and retain detailed depreciation schedules and supporting records for each asset in case of audit.
Common Mistakes and How to Avoid Them
Understanding common issues with Form 3885 (2012) can help you avoid errors and ensure compliance with California law.
Claiming federal bonus depreciation
California did not allow 50% bonus depreciation in 2012; recalculate using California depreciation methods and add back any federal bonus amounts on Form 100.
Exceeding Section 179 limits
Using the federal Section 179 limit of $500,000 instead of California’s $25,000 limit results in overstatements; follow California’s reduced threshold and apply the business income limitation.
Misusing MACRS
California corporations generally cannot use the Modified Accelerated Cost Recovery System; instead, they must use straight-line, declining balance, or other allowed depreciation methods as per state guidelines.
Ignoring proper useful lives
Applying federal useful life assumptions without verifying California conformity may result in incorrect deductions; consult R&TC Section 24349 and IRS guidelines that California has adopted.
Not adjusting cost basis
Failing to reduce asset basis by Section 179 or additional first-year depreciation can distort future depreciation calculations; always subtract special deductions before computing regular depreciation.
Making untimely elections
Section 179 and additional first-year depreciation elections must be made on original or timely extended returns; late elections require written approval from the Franchise Tax Board.
Claiming ineligible listed property
Deducting Section 179 for property used less than 50% for business, such as personal vehicles or shared-use computers, is disallowed; maintain detailed records of business use percentages.
What Happens After You File
Once you file Form FTB 3885 with your corporate income tax return, the Franchise Tax Board will process the depreciation and amortization figures and apply any adjustments to your California taxable income. If your California depreciation is lower than your federal deduction, the difference will increase your tax liability. If it is higher, it may result in a refund or reduction in tax owed. Standard processing time for paper returns is 8 to 12 weeks. Suppose the Internal Revenue Service later amends your federal depreciation.
FAQs
Can I claim both Section 179 and California’s additional first-year depreciation in the same year?
No, California does not allow corporations to claim both Section 179 expensing and the additional first-year depreciation for the same asset in the same tax year.
Do S corporations or LLCs taxed as partnerships use Form 3885?
No, S corporations must use Schedule B of Form 100S, and LLCs taxed as partnerships do not use Form 3885 unless they are treated as corporations for tax purposes.
Where do I report asset dispositions for 2012?
Asset sales or disposals should be reported on Schedule D or Schedule D-1, not on Form 3885. However, you will need your depreciation records to determine adjusted basis and calculate any capital gains.
Can I electronically file Form 3885 using cloud-based tools or platforms?
Yes, many tax professionals use cloud storage services, such as the ProConnect Tax system, or compatible tools like form builder platforms or the PDFfiller Android app to prepare and e-file California tax forms.
Is Form 3885 required for filing CA Form 199 or nonprofit tax forms?
No, Form 3885 is only required for corporations filing Form 100 or Form 100W and does not apply to exempt organizations using CA Form 199, Form 990, or Form 541-A.
