CCH Axcess Tax

California Depreciation

California does not allow federal MACRS depreciation for corporate returns. Federal depreciation is automatically calculated from entries on the "Federal Depreciation and Amortization" interview forms. Also, California did not conform to the provisions of the federal Jobs Creation and Workers Assistance Act of 2002, including the 30% first year bonus depreciation.

Regular Depreciation and Amortization

Form 3885 is automatically prepared from detail depreciation entries on the various federal depreciation sections, and from detail amortization entries using depreciation method "A" for amortization.

For assets purchased after 12-31-80, you must use the state specific depreciation column to properly calculate California depreciation on these assets. Enter "CA" in the state field to identify California depreciation entries. If California is the Home state (on General > Basic Data > General), then no entry is necessary in the state code box, since the system will default to the home state. For assets purchased in a prior year with Section 179 expense and/or ITC basis reduction, enter the California bonus deduction or zero (if no bonus deduction was taken, but there was Section 179 deduction for the asset) on the specific depreciation input, in the "Section 179" and "ITC Adjustment" boxes.

If there is no California depreciation input for a current asset that has federal Section 179, but depreciation entries exist for other assets, the system will use the federal basis of the asset less the smaller of California bonus deduction or Section 179 deduction. The federal method of depreciation and life are used. Total bonus deduction for the return is limited to $2,000. Note that for years after 2004, California does allow C corporations to take Section 179 expense deductions. However, due to the lesser amount allowed in California, it may be necessary to make data entry for the California amount.

If there are no California depreciation entries for the return, Form 3885 is processed using federal entries.

If you use to enter federal depreciation data in the summary input, you must also enter state depreciation amounts there (in the state total - override field) or use the appropriate CA input. California DOES NOT default to federal depreciation in this case.

Use California Income and Deductions Worksheet, Subtraction Section to override depreciation and amortization adjustments on page one of the California return when processing using the federal reconciliation method. If processing using the California method, use the depreciation and amortization overrides on California Other Worksheet, California Method Returns Section.

If the Automatic Sale feature is used, the federal and state difference on the sale of an asset automatically carries to the appropriate section of the California return.

If you wish to indicate the R & TC section under which amortization is claimed, you may do so on the federal depreciation section's "State Use Amount" field.

Alternative Minimum Tax Depreciation

The system will calculate the Alternative Minimum Tax (AMT) adjustment for depreciation on assets placed in service after December 31, 1986 for California returns.

Since California adopted I.R.C. code section 56(a) in full, the system will use the same formula used to calculate federal AMT depreciation. It will print the preference depreciation and ACE depreciation on an asset by asset basis on a separate report unless you elect otherwise by using the option on General > Depreciation and Depletion Overrides > Depreciation.

In calculating California AMT depreciation, all assumptions made for a federal asset (such as the ADR life of the asset and the application of the mid-quarter/half-year convention) will be the same. However, it is possible for the California AMT basis to differ from the federal AMT basis if a larger section 179 expense deduction is taken on the federal return than the maximum additional first year depreciation allowed on the California return. It is also possible for the AMT depreciation method to differ between the federal and California return. This can occur when the standard accelerated MACRS method is used on a federal asset, thus allowing the use of 150DB depreciation method for the federal AMT purposes. If the 125DB or straight line method is used to calculate California depreciation for the same asset , then straight line method must be used for the California AMT calculation for that asset.

Note: Depreciation is not calculated on assets that use methods "L", "ADR" or "VAR". You must enter the depreciation, preference depreciation and ACE depreciation amounts for these assets. Also, do not use the "Automatic Sale" feature with these methods. Instead, enter the depreciation to be recaptured on the sale of assets input.

To override the current California AMT depreciation calculation, a state column entry on the depreciation section entry must be made for the asset, entering a "2" or "4" in the "Code to Force" box or you can override the preference adjustments for Schedule P purposes using California AMT, ACE, Misc. and Credit Recaptures Worksheet, Alternative Minimum Tax Section..

California AMT Basis

If there are any California specific depreciation entries present for the return, the California AMT basis for an asset will be determined by subtracting any current or prior year bonus depreciation from the AMT basis entered, or, if that is not present, by subtracting current or prior year bonus from the cost of the asset entered.

If there is no state specific data entry present for the asset, the California AMT depreciation will be the same as the federal AMT depreciation. This is true except when current year Section 179 deduction is present on federal return. In this situation, the system will take the cost of the asset entered and subtract from it the lesser of California bonus deduction or the federal Section 179 expensed cost to arrive at the California AMT basis for this current year asset.

Note: The federal AMT basis overrides will not apply to California in any circumstance.

If there is no California specific depreciation data entered for ANY asset in the return, California AMT depreciation is assumed to be the same as federal. No separate computation is made.

Accumulated Tax Preference Depreciation

You must enter on California specific prior year accumulated tax preference depreciation for post-86 property for the applicable assets. The current year tax preference depreciation is added to the prior year tax preference depreciation. The total will be Pro Formaed on the next year's interview forms.

ACE Depreciation

If no California specific data is present for any of the assets in the return, the system does not recompute ACE depreciation for California purposes and California ACE depreciation will be zero. The system does not default to federal ACE depreciation. California law does not conform to federal law for assets acquired after 12-31-92.

If there are any California specific depreciation entries in the return, it will calculate California ACE depreciation in essentially the same manner as it does for the federal return. Refer to the specific instructions for federal ACE depreciation in the federal instruction guide. The following differences, however, do exist for the three methods.

Method 1	Assets placed in service after the start of 1990 tax year.
Method 2	Property classified as MACRS for federal purposes and placed in service before the start of the 1990 tax year.
Method 3	Property placed in service after January 1, 1981 and before January 1, 1987. This method is unique to California and has no federal equivalent.

Method 1 - Assets placed in service after the start of the 1990 tax year.

For a current year asset, the ACE basis is equal to the cost of the asset less any California current bonus depreciation (the current year bonus should never be greater than $2,000).

For a prior year asset, the ACE basis is equal to ACE basis override less California bonus deduction. If there is no ACE basis override, the basis is the cost of the asset less California bonus deduction.

If no state specific depreciation entry is present for the prior year asset, the ACE basis is equal to Federal Depreciation Worksheet cost less section 179 expensed cost present on the federal return.

Method 2 - Property classified as MACRS for federal purposes and placed in service before the start of the 1990 tax year.

If the California basis override is present for the particular asset, the California ACE basis will be equal to the override amount adjusted by the California bonus deduction.

If the California ACE basis override is not present for the asset, the California ACE basis will be the cost adjusted for the California bonus depreciation.

Note: It is assumed that an ACE basis override for a Method 2 asset is its adjusted AMT basis as of the start of the 1990 tax year (except for the amount of California bonus deduction). The system adjusts the basis for bonus deduction as indicated above.

The current year ACE depreciation is calculated using the ACE basis as of the start of current year and adjusted by bonus, and the asset's remaining ADR life.

Method 3 - Property placed in service after January 1, 1981 and before January 1, 1987.

This method has no federal comparison. ACE depreciation is calculated as if the asset has been depreciated on a straight line basis since it was first placed in service. Whether the ACE override basis is present for the asset, or the ACE basis of the asset is the same as it regular tax cost, the basis will be adjusted for prior year California bonus. As in methods 1 and 2, if no state specific depreciation data has been entered for the asset, prior Section 179 expensed cost is subtracted from the cost entered on Federal Depreciation Worksheets.

Note: You can override ADR life default values for AMT and ACE calculations by making appropriate entries on the federal detailed depreciation input. If none of these entries are present the ADR life default values listed in the federal instruction guide are used.

Note: The federal ACE basis override will not apply to California in any case.

To override the current California ACE depreciation calculation for any method, use the state specific input override for current year ACE depreciation amount with either a "3" or "4" entered in the "Code to Force" box or use California AMT, ACE, Misc. and Credit Recaptures > Adjusted Current Earnings Section.

Accumulated ACE Depreciation

You must enter on the prior year accumulated ACE depreciation on the state specific depreciation input. The current year ACE depreciation is added to the prior year amount. The total will be pro formaed on the next year's interview forms.

Manufacturers' Investment Credit

Carryover amounts for this credit are processed by your data entry on California Credits > General Credit.