What Form 3885 (2019) Is For
Form 3885 (2019) is used by C corporations to calculate depreciation and amortization adjustments when California tax laws differ from federal tax rules. The form aligns corporate depreciation with California’s interpretation of the Internal Revenue Code as of January 1, 2015. It is required when federal depreciation methods, such as MACRS or bonus depreciation, exceed the limits allowed by California. This includes calculating adjustments for investment assets, intangible items, and depreciation schedules that follow older California methods.
When You’d Use Form 3885 (2019)
You would use Form 3885 (2019) whenever California’s depreciation rules differ from what you claimed on your federal tax return.
Original corporate tax return filing
Corporations must include Form 3885 with Form 100 or Form 100W if depreciation or amortization amounts differ from those listed on federal Form 4562.
Amended returns
A revised Form 3885 is required when filing Form 100X to correct depreciation errors, adjust for IRS audit findings, or change the asset basis used in prior filings.
Late original returns
Corporations filing late must still submit Form FTB 3885 if required, as California does not permit retroactive elections for IRC Section 179 or additional first-year depreciation.
LLCs taxed as corporations
A Limited Liability Company that elects to be taxed as a corporation must file Form 3885 when depreciation adjustments apply.
Entities with amortizable assets
Corporations must complete Part IV when California amortization rules result in different deductions for intangible property than those under federal regulations.
Key Rules or Details for 2019
Several rules in Form 3885 (2019) affect how California corporations must report depreciation and amortization.
California does not permit MACRS for corporations
Instead of using the federal Modified Accelerated Cost Recovery System, corporations must apply California’s older methods, such as the straight-line, declining balance, or sum-of-the-years'-digits method.
Section 179 limits differ significantly
The maximum Section 179 deduction allowed by California in 2019 is $25,000, and this amount is reduced dollar for dollar when total qualifying purchases exceed $200,000.
No bonus depreciation allowed
California does not conform to federal bonus depreciation under IRC Section 168(k); instead, it offers a limited additional first-year amortization of up to 20 percent, with a total cap of $2,000.
Vehicle depreciation caps apply
California imposes annual depreciation limits for vehicles that are lower than the federal limits and must be used, regardless of the purchase price.
You cannot combine two elections for the same asset
Corporations must choose either Section 179 expensing or additional first-year depreciation for each asset, but never both.
Basis rules follow California adjustments
When Section 179 is elected, the asset’s basis must be reduced before calculating regular California depreciation to avoid overstating deductions.
Step-by-Step (High Level)
Completing Form 3885 (2019) requires a methodical approach to ensure compliance with California law.
Gather federal depreciation and amortization data
Start with your completed federal Form 4562 and identify any Section 179 amounts, bonus depreciation, and asset details that require California adjustments.
Identify assets requiring California adjustments
Determine which assets were placed in service in 2019 and used methods such as MACRS or bonus depreciation that California does not allow.
Complete Part I for Section 179
Enter California’s Section 179 limit of $25,000 and calculate any reductions based on qualifying property exceeding $200,000; ensure the deduction does not exceed California business income.
Calculate Part II depreciation
For each asset, use the correct California method (such as straight-line or declining balance) and enter the allowable depreciation based on the California basis and the asset's useful life.
Summarize amounts in Part III
Add together Section 179 and regular depreciation totals and compare with the federal amount to determine the depreciation adjustment to report on your tax return.
Complete Part IV for amortization
Report amortization of intangible assets using applicable California codes and compare with federal amounts to calculate the California-specific adjustment.
Attach the form to the state return
Submit Form FTB 3885 along with your Form 100, Form 565 (Partnership Return of Income), or Form 568, as required by your entity classification.
Common Mistakes and How to Avoid Them
Several common mistakes occur when completing Form 3885 (2019), but each can be avoided with careful attention to detail.
Using federal MACRS instead of California methods
Always recalculate depreciation using California-approved methods, such as the straight-line or declining balance method; do not carry over MACRS amounts from federal Form 4562.
Applying federal Section 179 limits
Confirm that the deduction does not exceed California’s $25,000 limit and that any required phase-out is calculated based on property placed in service.
Failing to add back federal bonus depreciation
If bonus depreciation was claimed federally, it must be added back in Part III and recalculated using a valid California depreciation method.
Mixing Section 179 and additional first-year depreciation
Elect only one option per asset; claiming both on the same property violates California tax form instructions and can delay processing.
Not updating basis after elections
When Section 179 is elected, reduce the depreciable basis of the asset before calculating regular depreciation to avoid overstating deductions.
Incomplete California amortization entries
When amortizing intangible assets, include all required details in Part IV and ensure calculations follow California amortization rules.
Not maintaining multi-year depreciation schedules
Create a permanent depreciation schedule to track California basis, accumulated depreciation, and remaining basis; this supports accurate future tax reporting.
What Happens After You File
Once Form 3885 (2019) is filed with the California Franchise Tax Board, the state reviews it alongside the corporation’s tax return to verify consistency and compliance with California tax law. Adjustments reported in Part III or Part IV are matched against Form 100 or other returns to ensure they are correctly reflected as additions or deductions. Because depreciation and amortization affect multiple tax years, corporations must maintain detailed records of prior depreciation to support future filings, asset dispositions, and potential audits.
FAQs
What is the difference between federal and California depreciation for corporations?
California does not allow corporations to use MACRS or 100 percent bonus depreciation, requiring different depreciation methods on Form 3885 (2019) than those permitted by the Internal Revenue Service on Form 4562.
Can a corporation amend Form 3885 (2019) after an IRS audit changes federal depreciation?
Yes, corporations must file an amended California return using Form 100X and a corrected Form 3885 if the Internal Revenue Service adjusts federal depreciation.
Which entities must use Form FTB 3885 instead of other California income tax forms?
C corporations and LLCs taxed as corporations must use Form FTB 3885, while partnerships file Form 565 and trusts file Form 541 for their state return requirements.
How does California handle Section 179 when federal deductions are higher?
California limits the Section 179 deduction to $25,000 and disallows the federal phase-out thresholds, requiring corporations to adjust depreciation and record the difference on their state tax form.
How does Form 3885 affect future gains and losses on asset sales?
Form 3885 adjustments affect the asset basis and depreciation schedules, which ultimately influence the gains and losses reported on California returns when investment assets are disposed of.
