Form 3885L: Depreciation and Amortization for CA LLCs

Form 3885L, “Depreciation and Amortization,” is a tax document for Limited Liability Companies (LLCs) that operate in California. Its function is to calculate and report the deduction for depreciation and amortization according to California’s state tax regulations. Any LLC organized, registered, or doing business in the state that owns assets losing value over time must use this form.

The necessity for this separate form arises because California’s rules for these deductions are not identical to federal rules. An LLC cannot simply use its federal depreciation figures for its state return. Instead, it must perform a distinct calculation for California purposes on Form 3885L.

Understanding California Depreciation and Amortization

The core reason Form 3885L exists is that California does not conform to all federal tax laws concerning depreciation. This non-conformity creates different deduction amounts at the state level compared to what is allowed on a federal return. These differences require LLCs to maintain separate depreciation schedules for state tax purposes, a task managed through Form 3885L.

A significant area of divergence is the treatment of bonus depreciation. The federal bonus depreciation allowance is being phased out. For property placed in service in 2024, the deduction dropped to 60% of the asset’s cost. California, however, does not conform to bonus depreciation at any percentage. LLCs must calculate their state depreciation deduction without this initial accelerated amount, resulting in a lower deduction in the first year but spreading it over the asset’s life.

Another difference lies in the Section 179 expense deduction. While both federal law and California allow businesses to expense the cost of certain qualifying property, the limits are different. For federal purposes, the maximum deduction for tax year 2024 was $1,220,000, with a phase-out starting at $3,050,000. California’s limits are much lower, with a maximum Section 179 expense deduction of only $25,000 and a phase-out threshold beginning at $200,000.

These variations mean that the depreciable basis of an asset is often different for federal and California returns from the very first year. While California generally uses a system similar to the federal Modified Accelerated Cost Recovery System (MACRS), referred to as CAL-MACRS, the differing starting basis due to non-conformity on bonus and Section 179 rules necessitates separate tracking. This separate calculation is what Form 3885L is designed to report.

Information Required to Complete Form 3885L

To complete Form 3885L, you must gather detailed records for every depreciable and amortizable asset the LLC owns. The document is divided into two main sections for reporting depreciation of tangible property and amortization of intangible assets.

Part I of the form is dedicated to depreciation and is structured as a table. For each asset, you must provide:

• A “Description of property,” such as “delivery truck” or “office computers.”
• The “Date placed in service,” which is the date the asset was ready and available for its specific use.
• The “Cost or other basis,” which is the amount paid for the asset, including sales tax, shipping, and installation costs.
• The “Depreciation for prior years,” which is the cumulative depreciation claimed on previous California tax returns.
• The “Method of figuring depreciation,” which will generally be CAL-MACRS.
• The “Life or rate,” which is the recovery period for the asset under California rules.
• The “Depreciation for this year,” the actual deduction being claimed for the current tax period.

Part II of the form follows a similar structure for amortization. You must provide:

• A “Description of costs,” such as “startup costs” or “patent acquisition.”
• The “Date amortization begins.”
• The “Amortizable amount.”
• The cumulative “Amortization for prior years” claimed on past California returns.
• The “Amortization period or percentage.”
• The calculated “Amortization for this year.”

Filing Form 3885L with Your California Return

Once completed, Form 3885L is not a standalone document. It must be attached as a supporting schedule to the LLC’s main California tax return. It functions as a detailed worksheet that substantiates the depreciation and amortization deduction claimed.

For most LLCs, the primary state tax return is Form 568, the Limited Liability Company Return of Income. The total depreciation and amortization calculated on Form 3885L is transferred to a specific line on Form 568. The completed Form 3885L must be included with the filing to ensure the FTB receives the necessary supporting detail.

The submission of the entire package follows the requirements for Form 568. LLCs can file electronically using approved tax software, which will integrate Form 3885L into the e-file submission. The filing deadline for Form 3885L is tied to the deadline for Form 568, which includes any approved extensions.