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Changes to 2005 Forms

2005 Updates to Form 3885

Revision Date: 12/27/05

Revision Details: Instructions

The revisions to the Form 3885 and the instructions were made to make them more clear. In Part I of the form, a new line 7 was added for listed property qualified for TRC Section 179 instead of having listed property added in line 6 together with other properties qualified for TRC Section 179. Due to this revision the numbering has changed. Also, we added/revised the forms instructions.

The revisions are not reflected in the following printed booklets: Form 100 Booklet, FTB 3885 starts on page 41-43; Form 100W Booklet, and FTB 3885 starts on page 47-49.

  • Side 1 of Form 3885, Part I

    It should read:

    7 Listed property (elected Section 179 cost)
    8 Total elected cost of Section 179 property. Add amounts in column (c), lines 6 and 7
    9 Tentative deduction. Enter the smaller of line 5 or line 8
    12 Section 179 expense deduction. Add line 9 and 10, but do not enter more than line 11
    13 Carryover of disallowed deduction to 2006. Add lines 9 and 10, less line 12

  • Side 1 of Form 3885, Part II

    It should read:

    Depreciation and Election of Additional First Year Expense Deduction Under R&TC Section 24356
    15
       Add the amounts in column (g) and column (h). The combined total of column (h) may not exceed $2,000. See instructions for line 14, column (h)

  • Side 1 of Form 3885, Part III

    It should read:

    16   Total:  If the corporation is electing:
    IRC Section 179 expense, add the amount on line 12 and line 15, column (g) or Additional first year depreciation under R&TC Section 24356, add the amounts on line 15, columns (g) and (h) or Depreciation (if no election is made), enter the amount from line 15, column (g)

  • Page 1 of Instructions for FTB 3885 under What's New

    It should read:

    … under Internal Revenue Code (IRC) Section 179, part or all of the cost of certain properties placed in service during the taxable year and used in the trade or business. For more information, see General Information F.

    Note: California does not allow IRC Section 179 expense election for off-the-shelf computer software.

    • California conforms to the federal changes made to the deduction of business start-up and organizational costs paid or incurred on or after January 1, 2005.
  • Page 1 of Instructions for FTB 3885 under General Information

    It should read:

    In general, California law conforms to the IRC as of January 2005.

  • Page 2 of Instructions for FTB 3885 under Federal/State Calculation Difference

    It should read:

    • California conforms to 2003 increase for the limitation on luxury automobile depreciation, with modifications.

    deleted second bullet and moved all other bullets up

    • California law allows additional first-year depreciation under R&TC Section 24356, or an election to expense the cost of the property as provided in IRC Section 179;
    • California law allows a useful life of five years, instead of ten years, for grapevines planted as replacements for vines subject to Phylloxera or Pierce's disease;
  • Page 3 of Instructions for FTB 3885 under Specific Line Instructions

    It should read:

    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 for qualified property under R&TC Section 24356. The corporation may only elect IRC Section 179 or the additional first year expense deduction for the same taxable year. The election must be made on a timely filed return (including extension). The election may not be revoked except with the consent of the Franchise Tax Board. Part II is also used to calculate depreciation for property (with or without the above elections).

  • Page 3 of Instructions for FTB 3885 under Specific Line Instructions Part I Election To Expense Certain Property Under IRC Section 179

    It should read:

    … The amount of Section 179 expense deductions for the taxable year cannot exceed the corporation business income on line 11. See the instructions for federal Form 4562 for more information.

    Line 2
    Enter the cost of all IRC Section 179 qualified property placed in service during the taxable year including the cost of any listed property. See General Information F, Election To Expense Certain Property Under IRC Section 179, for information regarding qualified property. See line 7 instructions for information regarding listed property.

    Line 5
    If line 5 is zero, the corporation cannot elect to expense any IRC Section 179 property. Skip lines 6 through 11, enter zero on line 12.

    Line 6
    Do not include any listed property on line 6. Enter the elected IRC Section 179 cost of listed property on line 7.
    Column (a) - Description of property. Enter a brief description of the property the corporation elects to expense.
    Column (b) - Cost (business use only). Enter the cost of the property. If the corporation acquired the property through a trade-in, do not include any carryover basis of the property traded in. Include only the excess of the cost of the property over the value of the property traded in.
    Column (c) - Elected cost. Enter the amount the corporation elects to expense. The corporation does not have to expense the entire cost of the property. The corporation can depreciate the amount it does not expense.

    Line 7
    Use a format similar to federal Form 4562, Part V, line 26 to determine the elected IRC Section 179 cost of listed property. Listed property generally includes the following:

    • Passenger automobiles weighing 6,000 pounds or less.
    • Any other property used for transportation if the nature of the property lends itself to personal use, such as motorcycles, pick-up trucks, sport utility vehicles, etc.
    • Any property used for entertainment or recreational purposes (such as photographic, phonographic, communication, and video recording equipment).
    • Cellular telephones (or other similar telecommunications equipment).
    • Computers or peripheral equipment.

    Exception. Listed property generally does not include:

    • Photographic, phonographic, communication, or video equipment used exclusively in the corporation's trade or business.
    • Any computer or peripheral equipment used exclusively at a regular business.
    • An ambulance, hearse, or vehicle used for transporting persons or property for hire.

    Listed property used 50% or less in business activity does not qualify for the IRC Section 179 expense deduction. For more information regarding listed property, see the instructions for federal Form 4562.

    Line 11
    The total cost the corporation can deduct is limited to the corporation's business income. For the purpose of IRC Section 179 election, business income is the net income derived from the corporation's active trade or business, Form 100 or Form 100W, line 18, before the IRC Section 179 expense deduction (excluding items not derived from a trade or business actively conducted by the corporation).

  • Page 3 of Instructions for FTB 3885 under Specific Line Instructions, Part II

    It should read:

    Depreciation and Election of Additional First year Expense Deduction under R&TC Section 24356

    Line 14

    Line 14, Column (h), Additional first-year depreciation
    Corporations may enter each asset separately or group assets into depreciation accounts.

    There is a minor impact on the tax liability.
    The revised internet version is available for download.

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