What Form 3885 (2014) Is For
Corporations use Form 3885 (2014) to calculate California-specific depreciation and amortization amounts that differ from those on the federal return. This includes deductions for tangible and intangible business assets, which California law treats differently from federal rules. The form helps determine proper adjustments for taxable income and must be filed with the corporate income tax return. It applies to corporations filing Form 100, Form 100W, or an amended tax return (Form 100X), and does not apply to limited liability companies unless classified as corporations.
When You’d Use Form 3885 (2014)
Corporations use Form 3885 (2014) when California depreciation or amortization rules differ from federal rules, including the following situations.
Filing a timely original tax return
Corporations must attach Form 3885 when claiming depreciation or amortization that differs from federal values on Form 100 or Form 100W.
Filing an amended tax return
If prior depreciation calculations were incorrect, corporations must file Form 100X and attach a corrected Form 3885 to reflect accurate figures.
Claiming California Section 179 expensing
Part I of Form 3885 is used when a corporation elects to expense tangible property under California’s reduced Section 179 limit.
Electing additional first-year depreciation under R&TC Section 24356
Part II is used to report a deduction of up to 20 percent of qualifying property, limited to $2,000.
Adjusting asset basis due to depreciation method differences
When MACRS or bonus depreciation is used federally but disallowed in California, Form 3885 must be used to reconcile the adjustments.
Key Rules or Details for 2014
California depreciation rules for the 2014 tax year differ significantly from federal provisions and must be followed carefully.
California does not adopt MACRS depreciation
Corporations must use the straight-line, 200% declining balance, or 150% declining balance methods, based on the asset type and whether the property is new or used.
California Section 179 expensing is capped at $25,000
The maximum Section 179 deduction allowed for 2014 is $25,000, reduced dollar-for-dollar when qualifying purchases exceed $200,000.
Off-the-shelf software does not qualify for Section 179
California does not conform to federal rules allowing Section 179 expensing for purchased software.
Additional first-year depreciation is optional and limited
Under R&TC Section 24356, corporations may deduct up to 20 percent of qualifying property cost, with a cap of $2,000.
Amortization follows IRC Section 197 for intangibles
California allows 15-year straight-line amortization for qualifying intangible assets acquired after January 1, 1994.
The basis must be adjusted for first-year expensing
Corporations must reduce the depreciable basis of assets by the amounts claimed under Section 179 or R&TC Section 24356 before calculating regular depreciation.
Listed property requires business-use documentation
Property such as vehicles and computers must be used more than 50 percent for business to qualify for Section 179 and must be listed separately in Part I, line 7.
Step-by-Step (High Level)
To complete Form 3885 (2014) accurately, follow these high-level steps based on the form instructions and applicable California laws.
Gather your corporate financial records
Collect property details, including acquisition dates, costs, depreciation methods, business use percentages, and federal depreciation amounts from Form 4562.
Complete Part I for IRC Section 179 election
Enter the maximum allowable deduction, apply the phaseout threshold, and calculate allowable Section 179 expensing based on business income limits.
Complete Part II for depreciation calculation
List all qualifying tangible assets, showing acquisition date, cost, depreciation method, and current year depreciation; include additional first-year depreciation in column h if elected.
Complete Part III to summarize depreciation
Compare California depreciation from Part II with federal depreciation from Form 4562, and calculate the appropriate depreciation and amortization adjustments to be entered on the tax return.
Complete Part IV for amortization
Report all amortizable intangibles, such as organizational costs and goodwill, and apply straight-line depreciation under IRC Section 197 or other applicable R&TC codes.
Attach Form 3885 to the tax return
File the completed form with Form 100, Form 100W, or Form 100X, depending on whether the return is original or amended.
Common Mistakes and How to Avoid Them
Many corporations make errors on Form 3885 (2014) that result in audits or delayed processing; here’s how to prevent them.
Using MACRS depreciation methods instead of California-allowed methods
Corporations must use straight-line or declining balance methods approved under California law, since MACRS is not permitted for California purposes.
Exceeding California’s Section 179 deduction limit
Always cap the deduction at $25,000 and apply the phaseout threshold beginning at $200,000 of qualifying property to comply with California rules.
Claiming both Section 179 and additional first-year depreciation in the same year
California law allows only one election per tax year, so corporations must choose either Section 179 or R&TC Section 24356 and apply it consistently.
Failing to reduce depreciable basis after claiming an expense election
When a Section 179 or additional first-year deduction is claimed, corporations must reduce the asset’s basis before calculating regular depreciation.
Not carrying forward disallowed Section 179 amounts
If business income limits prevent the full use of Section 179 deductions, the unused amount must be tracked and carried forward to future tax years.
Including listed property used 50% or less for business purposes
Property such as vehicles or computers must exceed 50% business use and be documented separately on Form 3885 to qualify for any deduction.
Omitting required documentation to support deductions
Corporations must maintain detailed records, including invoices, placement-in-service dates, and usage logs, to substantiate all depreciation and amortization claims.
What Happens After You File
Once Form 3885 (2014) is submitted with the appropriate California form (such as Form 100 or Form 100W), the Franchise Tax Board will process the depreciation and amortization adjustments as part of your tax liability calculation. If the figures on Form 3885 differ from those reported on federal Form 4562, the FTB may initiate correspondence or issue a Notice of Proposed Assessment. Elections made for Section 179 or R&TC Section 24356 depreciation become final upon timely filing and impact future-year asset basis and reporting.
FAQs
Can I use MACRS to calculate depreciation on Form 3885 (2014)?
No, California does not conform to the federal MACRS system, so you must use alternative depreciation methods, such as straight-line or declining balance, based on the asset’s class life.
Is Form 3885 (2014) required for a fiduciary income tax return?
No, fiduciaries must instead use Form FTB 3885A or Form 541-A, depending on whether the return involves trusts or estates.
Can I file Form 3885 with a Partnership Return of Income?
No, partnerships should use Form 565 and refer to Form 3885A when depreciation or amortization needs to be reported.
What do I report if I disposed of property in a like-kind exchange?
You must report basis adjustments using California’s adjusted basis rules, and depreciation must be reconciled with Form FTB 8824 or your applicable Schedule K-1.
Is salvage value taken into account when using California depreciation methods?
Yes, when using methods like the straight-line method, corporations must subtract the salvage value from the asset’s basis before calculating depreciation under California law.
