Deferred Tax Liabilities: What Berkshire's $85.6B Means

A company can report a substantial tax liability without having to pay that amount in the current year. For investors examining financial statements, this distinction matters because accounting recognizes certain tax consequences before the corresponding cash payment occurs.

Berkshire Hathaway offers a particularly useful example. At December 31, 2025, the conglomerate reported approximately $85.6 billion in net deferred income tax liabilities. Yet the company paid $14.0 billion in income taxes during the year.

Both numbers are important, but they describe different things. The deferred tax balance reflects estimated future tax consequences associated with accounting and tax differences accumulated over time. Cash taxes reflect actual payments made during the reporting period.

Understanding that distinction helps investors avoid two opposite mistakes: treating every deferred tax liability like a debt payment due tomorrow, or assuming that taxes not yet paid represent permanent savings.

What are deferred tax liabilities?

A deferred tax liability arises when the accounting treatment of an asset, liability, income or expense differs from its treatment for tax purposes, creating a temporary difference expected to produce taxable amounts in future periods.

Financial reporting and tax reporting do not always recognize economic events at the same time. A company might recognize an increase in an investment's value in its financial statements before that gain becomes taxable. Alternatively, it may deduct the cost of an asset faster for tax purposes than it recognizes depreciation in its accounting statements.

In both situations, the timing of recognized income or expenses differs between the financial statements and the tax return.

Accounting standards generally require companies to recognize the expected future tax consequences of these temporary differences. Under US GAAP, these requirements are primarily addressed by ASC 740.

The accounting guidance on deferred taxes explains why the difference between an asset's financial reporting value and its tax basis can create a future tax obligation.

The key word is future. A deferred tax liability is not necessarily an amount immediately payable to the tax authorities. It reflects the expected tax consequences when the underlying temporary difference reverses.

Berkshire's $85.6 billion deferred tax balance

Berkshire's 2025 annual report provides a detailed breakdown of its deferred tax position.

At December 31, 2025, Berkshire reported approximately $96.9 billion in gross deferred tax liabilities. The largest components were:

• $48.4 billion: Investments, including unrealized appreciation.
• $34.8 billion: Property, plant, equipment and equipment held for lease.
• $7.4 billion: Goodwill and other intangible assets.
• $6.2 billion: Other temporary differences, including deferred reinsurance charges.

These amounts were partly offset by approximately $11.3 billion in deferred tax assets, leaving a net deferred income tax liability of $85.6 billion.

The previous year, the equivalent net liability was approximately $83.6 billion.

These are substantial accounting balances. However, the individual components arise from different activities and may reverse under different circumstances and over different periods.

That makes the composition of the liability more informative than the total alone.

Why unrealized investment gains create deferred taxes

One of Berkshire's largest deferred tax components relates to its investment portfolio.

At the end of 2025, Berkshire's equity securities had an aggregate fair value of approximately $297.8 billion against a cost basis of $85.4 billion. The difference represented roughly $212.4 billion in net unrealized investment gains.

These gains are economically relevant because the investments are worth substantially more than their original purchase prices. But an increase in market value does not necessarily mean the company has already sold the shares or paid tax on the appreciation.

Under Berkshire's accounting policies, changes in the fair value of equity securities generally flow through reported earnings. Tax rules can recognize the taxable gain at a different time, often when the investment is sold.

That difference between financial reporting and taxation creates deferred tax consequences.

Consider a simplified example. A company purchases shares for $100 million. Several years later, their fair value reaches $160 million.

The investment has appreciated by $60 million. If the company recognizes that appreciation in its financial statements while retaining a $100 million tax basis, a temporary difference exists.

Assuming an illustrative 21% tax rate, the associated deferred tax liability would be $12.6 million.

That does not mean the company immediately owes $12.6 million in cash taxes simply because the investment appreciated. The tax payment generally depends on the applicable tax rules and the event that causes the temporary difference to reverse.

If the company eventually sells the investment at the assumed value, the previously deferred tax consequences can become current tax obligations.

If the investment remains unsold, the timing can be considerably different. If its market value changes, the deferred tax estimate may change as well.

This is why deferred tax liabilities related to investment appreciation deserve different analytical treatment from conventional borrowing with fixed repayment dates.

Property and equipment create another major difference

Berkshire's second-largest deferred tax category relates to property, plant and equipment.

At the end of 2025, this category accounted for approximately $34.8 billion in deferred tax liabilities.

The underlying principle is different from unrealized investment gains, but the timing issue is similar.

Companies often use assets such as machinery, buildings, vehicles and industrial equipment over many years. For financial reporting, the cost of these assets is generally recognized through depreciation over their useful lives.

Tax rules may allow depreciation deductions to be taken more quickly.

That accelerated tax treatment can reduce taxable income during the earlier years of an asset's life, even though the company continues recognizing accounting depreciation over a longer period.

The immediate benefit is lower current taxable income than would otherwise arise.

But faster tax deductions today generally mean fewer remaining deductions in later periods. That creates a deferred tax liability representing the expected future reversal of the temporary difference.

This is especially relevant to capital-intensive businesses.

Berkshire owns businesses in industries such as rail transportation, utilities, manufacturing and energy. Many of these operations require substantial investment in long-lived physical assets.

The tax treatment of that investment can materially influence the timing of cash tax payments.

Tax deferral can have genuine economic value

Deferring a tax payment can benefit shareholders because money retained today remains available for investment, liquidity or other corporate purposes until the tax becomes payable.

Consider two otherwise identical businesses. Both generate the same underlying economic profit and face the same eventual tax burden.

One business must pay the tax immediately. The other can defer part of the payment for several years.

The second business has a financing advantage because it retains access to cash for longer.

That does not eliminate the future obligation. But the timing creates economic value because a dollar available today can potentially earn a return before it must be paid out.

This helps explain why the value of a deferred tax liability cannot always be understood by treating its accounting balance as identical to a conventional financial debt obligation.

Under US GAAP, deferred tax assets and liabilities are generally measured without discounting their future amounts to present value.

An investor performing an economic valuation may nevertheless need to consider the timing, probability and amount of future cash tax payments.

The important distinction is between accounting measurement and economic valuation. The reported liability is meaningful, but it does not necessarily describe the present value of the future cash payments under every valuation assumption.

Deferring taxes is not the same as avoiding them

Investors should also avoid interpreting deferred taxes as a permanent source of free financing.

A temporary difference exists because accounting and tax recognition occur at different times. Under normal circumstances, the accounting assumes that the difference will eventually reverse when the related asset is recovered or liability settled.

For example, accelerated depreciation may reduce cash taxes during the early years of an investment. But the company has fewer remaining deductions associated with that asset in later years.

Similarly, unrealized investment appreciation can remain untaxed until a taxable event occurs. Selling the investment may crystallize the tax obligation.

The economic question is therefore not simply whether the company can defer taxes today. Investors should consider how long the deferral may last and what circumstances would cause it to reverse.

For a business that continually reinvests in new assets, some temporary differences may reverse while others are created. The aggregate deferred tax balance can remain substantial over long periods.

That does not make the underlying obligations imaginary. It means that individual reversals and the movement of the total balance are not necessarily the same thing.

Income tax expense and cash taxes are different numbers

The distinction becomes particularly clear when comparing Berkshire's income statement with its cash-flow disclosures.

In 2025, Berkshire reported $15.2 billion in income tax expense.

The company's tax footnote separated that expense into approximately $13.3 billion of current tax expense and $1.9 billion of deferred tax expense.

Meanwhile, Berkshire disclosed actual cash income tax payments of approximately $14.0 billion.

These figures do not need to match because they measure different aspects of the company's tax position.

Current tax expense generally reflects income taxes attributable to the reporting period under applicable tax rules. Deferred tax expense reflects changes in recognized future tax consequences recorded through the income statement.

Cash taxes paid reflect actual payments during the period, which may include settlements relating to previous years, instalments and other timing differences.

It would therefore be incorrect to assume that the difference between total tax expense and cash taxes paid must equal the deferred tax expense reported in the income statement.

Changes in tax payables, payments relating to other periods and deferred tax movements recognized outside the income statement can affect the reconciliation.

The broader lesson is that accounting tax expense and cash tax payments answer different questions. Neither figure should be ignored, but they should not be treated as interchangeable.

Deferred tax assets are the other side of the equation

Deferred tax accounting does not only produce liabilities.

A deferred tax asset represents future tax benefits associated with deductible temporary differences, tax-loss carryforwards or other eligible tax attributes.

For example, a company may recognize an accounting expense before the related deduction becomes available for tax purposes. Alternatively, it may incur a tax loss that can potentially be carried forward to reduce future taxable income.

Under the applicable accounting rules, such differences can create deferred tax assets.

But the existence of a deferred tax asset does not mean the company can immediately exchange it for cash.

Its economic value depends on whether the future tax benefit can actually be used.

Under US GAAP, deferred tax assets are subject to a realizability assessment. A valuation allowance is required to reduce the recognized asset when the relevant accounting threshold indicates that some or all of the benefit is not expected to be realized.

Berkshire's $11.3 billion in deferred tax assets at year-end 2025 therefore represents a different category of future tax consequences from its gross deferred tax liabilities.

Investors should understand both sides before making conclusions from the net balance.

Why deferred taxes matter for intrinsic value

Deferred tax liabilities become particularly important when investors move from accounting analysis to valuation.

Suppose an investor values a company's investment portfolio using current market prices.

If those investments contain substantial unrealized taxable gains, selling them may generate future taxes. A valuation that assumes all investments can be liquidated at current prices without tax consequences could overstate the proceeds ultimately available to shareholders.

But the opposite mistake is also possible.

Deducting every deferred tax liability as though it were immediately payable can underestimate the value of a company that may continue holding assets and deferring the associated taxes for many years.

The correct economic treatment depends on the valuation approach.

In a liquidation-style analysis, potential taxes on asset disposals can be particularly important. The investor should consider the likely proceeds after the relevant transaction costs and tax consequences.

In a going-concern discounted-cash-flow analysis, the focus shifts toward the expected timing and magnitude of future cash tax payments.

A further complication arises when using book value. Reported shareholder equity already reflects recognized deferred tax balances. Subtracting the same liabilities again without understanding the starting valuation measure can lead to double-counting.

This is why deferred tax analysis should be integrated into the wider valuation rather than applied as an isolated mechanical adjustment.

What Berkshire's tax position tells investors

Berkshire's deferred tax balance reflects several characteristics of its business model.

Its large investment portfolio creates significant differences between market values and tax bases. Its capital-intensive operating subsidiaries can generate substantial temporary differences through depreciation and other accounting treatments.

Those two categories alone represented more than $83 billion of gross deferred tax liabilities at the end of 2025.

The size of the balance is therefore not sufficient evidence that Berkshire is experiencing financial distress. It largely reflects the scale and structure of the assets and businesses held by the conglomerate.

At the same time, the liability should not simply be dismissed as an accounting technicality.

Future asset sales, depreciation patterns, capital investment decisions and changes in applicable tax rules can affect how those obligations develop and when related payments occur.

Investors evaluating Berkshire should therefore read the tax footnote alongside the company's investment portfolio, cash-flow statement, operating businesses and capital-allocation decisions.

The relationship between those elements matters more than the deferred tax balance in isolation.

What MOATEY currently sees in Berkshire Hathaway

As of October 28, 2026, MOATEY classifies Berkshire Hathaway as Cyclical and rates the company Poor, with an overall score of 31.8 out of 95.

The framework currently awards Berkshire the full 15 of 15 Financial Health points, while Growth contributes 1.3 of 15 points and Management 9.5 of 15. Valuation currently receives 0 of 30 points.

These observations illustrate why the different dimensions of fundamental analysis should remain separate.

A company can receive a strong financial-health assessment while its broader growth, valuation or other fundamental evidence produces a weaker overall rating.

However, these figures should not be interpreted as a direct assessment of Berkshire's deferred tax position. The reported MOATEY data does not establish how much of the Financial Health assessment, if any, is attributable specifically to deferred tax liabilities.

Berkshire is also an unusually diversified company, combining operating businesses, insurance activities and a substantial investment portfolio. Its consolidated accounting figures therefore require additional context when assessing underlying earning power.

The purpose of the current MOATEY assessment is to apply a consistent systematic framework. The resulting rating is not an investment recommendation or a substitute for understanding company-specific accounting characteristics.

Readers who want to inspect the methodology and supporting validation research can review the MOATEY factsheet and documentation.

How investors should evaluate deferred tax liabilities

A practical analysis begins by identifying what created the liability. Deferred taxes arising from unrealized investment appreciation may behave differently from those associated with accelerated depreciation or acquisition accounting.

The next question concerns timing. What events would cause the temporary differences to reverse? Asset sales, depreciation schedules and business restructuring can create different cash-tax outcomes.

Investors should then compare reported tax expense with actual cash taxes. A large difference in one year is not automatically concerning, but persistent differences deserve explanation.

It is also useful to examine the company's deferred tax assets and any valuation allowances. These amounts help determine whether future tax benefits partially offset the expected future tax obligations.

Finally, the valuation method matters. An asset-based valuation, an earnings multiple and a discounted-cash-flow model can each require different treatment of deferred taxes to remain economically consistent.

This is related to a broader accounting distinction discussed in our guide to retained earnings versus cash. Financial statements contain important economic information, but an accounting balance is not necessarily equivalent to money currently available or immediately payable.

The goal is not to eliminate accounting adjustments from investment analysis. It is to understand what those adjustments actually represent.

Taxes deferred are not taxes forgotten

Berkshire's $85.6 billion net deferred tax liability is a substantial accounting figure. It reflects future tax consequences associated with investments, operating assets and other temporary differences.

But it does not represent an $85.6 billion payment that Berkshire must make immediately.

Nor does it mean the company has permanently avoided those taxes.

The underlying assets, future transactions and applicable tax rules determine when and how those obligations develop.

For long-term investors, this is the central distinction. Accounting recognizes future tax consequences because they are economically relevant. Cash-flow analysis then asks when those consequences may translate into actual payments.

A sensible valuation needs to respect both perspectives.

Ignoring deferred tax liabilities can overstate the value ultimately available to shareholders. Treating every deferred tax liability like short-term financial debt can be equally misleading.

The better approach is to understand where the liability came from, how it could reverse and what its timing means for the company's future cash generation.

Deferred taxes are not merely accounting noise. They are part of the economic relationship between reported earnings, cash flows and the value of the business.