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| conformity with federal on the recovery period of 39 years, you should use Form FTB 3885A to show the adjustment that you must make on Schedule CA of Form 540 or Form 540NR). |
| Depreciation of assets acquired prior to January 1, 1987 |
| There have been many differences in the manner of depreciation between California and the federal tax system over the years. It seems as if there was a lack of communication between the Internal Revenue Service and the state of California before. Now they are more in sync with each other and seem to be more conformity than before (before the internet era). As a result of the differences in the past, if you have assets that you are currently depreciating which were acquired before January 1, 1987, there are special adjustments that must be made for California. Federal allows a rapid write-off of tangible personal property and buildings over recovery periods which were shorter than economic useful lives under the Accelerated Cost Recovery System (ARS). California law generally did not conform to federal law but did allow ACRS for certain residential rental property constructed in California on or after July 1, 1985, and before January 1, 1987. Use form 3885A to figure the depreciation adjustment and the transfer amount to include on Schedule CA of Form 540 or Form 540NR). |
| Additional depreciation (IRC Section 168(k)) |
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Compared to California, the Internal Revenue service is very generous with its depreciation allowance for its taxpayers. Federal law allows an additional 30% first year depreciation deduction and AMT depreciation adjustment for property placed in service after September 10, 2001 and this amount is increased to 50% for property placed in service after May 5, 2003. California did not conform to provisions for assets placed in service on or after September 11, 2011, and before January 1, 2005. Furthermore, federal law allows an additional 50% first year special depreciation for certain qualified property acquired on or after January 1, 2007, and before January 1, 2015 but California does not conform to this provision. You need to use Form FTB 3885A to figure the adjustment to make on Schedule CA of Form 540 or Form 540NR. California is not as generous in its depreciation allowance and therefore you must make an adjustment to account for the differences. |
| Depreciation of qualified leasehold improvements and qualified restaurant property acquired before January 1, 2015 |
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California leasehold improvements must be recovered within 39 years and not 15 year like the Internal Revenue Service has in place. Improvements you make to property which you lease are deductible business expenses. However, expenses that you incur before the start of business must be amortized just like when you depreciate property. Treat these expenses as capital expenditures. Any leasehold improvements and qualified restaurant property must be recovered within 15 years. Federal law requires a 15 year recovery period. However, for California tax purposes, qualified leasehold improvements and qualified restaurant property must be recovered over a 39 year recovery period. If you have this sort of amortization requirement, use Form FTB 3885A to figure your adjustments that must be made on Schedule CA of Form 540 or Form 540NR. California tax law allows a less rapid recovery period than the Internal Revenue Service allows. |
| Amortization of goodwill and certain other intangibles |
| Goodwill is an intangible which possesses no physical form and so do other intangibles. Intangibles real but formless and they are usually deductible through a process similar to depreciation called amortization. Amortization is a way of deducting capital expenditures over a fixed number of years. Deducting amortization costs over a period of time is similar to deducting depreciation costs over a period of time. Examples of items that can be amortized are goodwill and other intangibles which are similar to goodwill. A value is placed on a business over |
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| Revised: 07/09/15 |
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