Salvage Value and California Depreciation

[Newaccountant]

For California depreciation using the declining balance method, is the estimated salvage value of the asset taken into account when calculating depreciation, or is depreciation computed entirely based on the assets cost and recovery period?

[RobertB4444]

No, in the declining balance method an asset is never depreciated below its salvage value.

[Newaccountant]

Could you please provide documentation supporting that statement? I would appreciate a bit more detail or a reference. In IRS Publication 946, the definition of “salvage value” states: An estimated value of property at the end of its useful life. Not used under MACRS. So I thought I was safe applying this for federal tax purposes.

I have doubts regarding California income tax. As I understand it, California generally follows federal depreciation rules, which would mean that salvage value is also not taken into account.

[CatinaT1 · Accepted solution]

If you want to see this written in official FTB guidance, you can pull up the Instructions for Form FTB 3885 (Corporation Depreciation and Amortization). Under Section C: Depreciation Calculation Methods, the state explicitly dictates:

"Declining Balance. Under this method, depreciation is greatest in the first year and smaller in each succeeding year... Salvage value is not taken into account in determining the basis of the property, but the property may not be depreciated below a reasonable salvage value."