CARVANA CO.CVNA
CARVANA CO. Income Taxes Disclosure
NOTE 14 — INCOME TAXES
As described in Note 1 — Business Organization and Note 10 — Stockholders' Equity, as a result of the IPO, Carvana Co. began consolidating the financial results of Carvana Group. Carvana Group is treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, Carvana Group is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by Carvana Group is passed through to and included in the taxable income or loss of its members (LLC Unitholders), including Carvana Co., based on its allocable share held in Carvana Group. Nonetheless, many states require that partnerships make mandatory tax payments on behalf of members who are non-residents of the respective states. Accordingly, if Carvana Group generates taxable income and is required to remit income tax on behalf of its members, it will make payments to the states through composite tax returns and non-resident withholding. These payments are treated as distributions to the affected members because the amounts remitted are a payment of income tax on behalf of the affected members. Payments on behalf of non-controlling members of $4 million for the year ended December 31, 2025 are included as reductions to the non-controlling interests in the accompanying consolidated statements of stockholders' equity (deficit). Payments on behalf of Carvana Co. Sub LLC are recorded through the income tax provision in the accompanying consolidated statements of operations.
Net (loss) income before income taxes was $(890) million, $400 million, and $175 million for the years ended December 31, 2025, 2024, and 2023, respectively. The Company had an income tax (benefit) provision of $(2.8) billion, $(4) million, and $25 million for the years ended December 31, 2025, 2024, and 2023, respectively.
During the year ended December 31, 2025, management performed an assessment of the recoverability of deferred tax assets. This assessment considered both positive and negative evidence related to the likelihood of realization of the deferred tax assets. These objective and subjective factors included, but were not limited to, a recent history of sustained profitability and utilization of deferred tax assets, which is objective and verifiable, and anticipated future earnings, including consideration of historical and future excess tax benefits related to equity-based compensation. After evaluating the weight of all available evidence, management determined, based on the accounting standards applicable to such assessment, that there was sufficient evidence as a result of the aforementioned considerations to conclude it was more likely than not that its deferred tax assets will be realizable. During the year ended December 31, 2025, the Company (i) released $2.2 billion of its valuation allowance through income tax (benefit) provision in the accompanying consolidated statements of operations; (ii) established $277 million of deferred tax assets related to increases in tax basis in Carvana Group through additional paid-in capital in the accompanying consolidated statements of stockholders' equity (deficit); (iii) and recorded $547 million of income tax benefit as a result of current year activity through income tax (benefit) provision in the accompanying consolidated statements of operations. The Company will continue to monitor the need for a valuation allowance against its deferred tax assets.
The components of income tax (benefit) provision are as follows:
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (in millions) | |||||||||||||||||
| Federal - Current | $ | (4) | $ | — | $ | 25 | |||||||||||
| Federal - Deferred | (2,316) | (3) | (4) | ||||||||||||||
Federal - Total | (2,320) | (3) | 21 | ||||||||||||||
| State - Current | 3 | (1) | 4 | ||||||||||||||
| State - Deferred | (468) | — | — | ||||||||||||||
State - Total | (465) | (1) | 4 | ||||||||||||||
Income tax (benefit) provision | $ | (2,785) | $ | (4) | $ | 25 | |||||||||||
As described in Note 2 — Summary of Significant Accounting Policies, the Company adopted ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures on a retrospective basis. The following table presents a reconciliation of the (benefit) provision for income taxes to the amount computed by applying the 21% statutory U.S. federal income tax rate to (loss) income before income taxes:
| Years Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||||||
| Amount | Percent | Amount | Percent | Amount | Percent | ||||||||||||||||||||||||||||||
| (dollars in millions) | |||||||||||||||||||||||||||||||||||
| Expected U.S. federal income taxes at statutory rate | $ | (187) | 21.0 | % | $ | 84 | 21.0 | % | $ | 37 | 21.0 | % | |||||||||||||||||||||||
| Federal tax credits | (6) | 0.7 | % | (1) | (0.3) | % | (2) | (1.3) | % | ||||||||||||||||||||||||||
| Non-taxable or non-deductible items: | |||||||||||||||||||||||||||||||||||
| (Income) Loss attributable to non-controlling interests | (99) | 11.1 | % | (42) | (10.6) | % | 61 | 34.9 | % | ||||||||||||||||||||||||||
| Excess tax benefits related to stock-based compensation | (154) | 17.3 | % | (68) | (17.0) | % | — | — | % | ||||||||||||||||||||||||||
| Disallowed interest | 16 | (1.8) | % | 15 | 3.8 | % | 5 | 2.9 | % | ||||||||||||||||||||||||||
| Executive compensation deduction limitation | 55 | (6.2) | % | 17 | 4.4 | % | — | — | % | ||||||||||||||||||||||||||
| Other | 1 | (0.1) | % | 2 | 0.4 | % | 1 | 0.9 | % | ||||||||||||||||||||||||||
| Changes in valuation allowance | (1,946) | 218.7 | % | (9) | (2.2) | % | (81) | (46.1) | % | ||||||||||||||||||||||||||
| State taxes | (465) | 52.2 | % | (2) | (0.5) | % | 4 | 2.0 | % | ||||||||||||||||||||||||||
| Income tax (benefit) provision | $ | (2,785) | 312.9 | % | $ | (4) | (1.0) | % | $ | 25 | 14.3 | % | |||||||||||||||||||||||
For the years ended December 31, 2025, 2024, and 2023, state and local income taxes in California, New Jersey, Florida, and Georgia, comprised the majority (greater than 50 percent) of the tax effect in this category. For the year ended December 31, 2025, Illinois also comprised the majority of the tax effect in this category. For the year ended December 31, 2024, Arizona and Massachusetts also comprised the majority of the tax effect in this category. For the year ended December 31, 2023, Arizona also comprised the majority of the tax effect in this category.
The following table presents income taxes paid, net of refunds received, by jurisdiction for the following years:
Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| (in millions) | |||||||||||||||||
| U.S. Federal | $ | 4 | $ | (3) | $ | 23 | |||||||||||
| U.S. State and local | |||||||||||||||||
| Indiana | $ | 1 | $ | — | $ | — | |||||||||||
| Maryland | 1 | — | — | ||||||||||||||
| Pennsylvania | (1) | — | 1 | ||||||||||||||
| Other | 1 | 3 | 3 | ||||||||||||||
| $ | 2 | $ | 3 | $ | 4 | ||||||||||||
| Total | $ | 6 | $ | — | $ | 27 | |||||||||||
The amount of income taxes paid in Indiana and Maryland during the years ending December 31, 2024 and 2023 does not meet the 5% disaggregation threshold.
Deferred income taxes reflect the net tax effects of temporary differences between the tax basis in an asset or liability and its reported amount under GAAP. These temporary differences result in taxable or deductible amounts in future years. The components of the Company’s deferred tax assets are as follows:
| Years Ended December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| (in millions) | |||||||||||
| Deferred tax assets: | |||||||||||
| Investment in Carvana Group | $ | 1,712 | $ | 1,510 | |||||||
| Net operating loss carryforward | 354 | 299 | |||||||||
| Interest expense carryforward | 136 | 164 | |||||||||
| Tax credit carryforward | 13 | 6 | |||||||||
| Cancellation of debt income | 276 | 241 | |||||||||
| Tax receivable agreement liability | 566 | 20 | |||||||||
| Other | 10 | 4 | |||||||||
| Total gross deferred tax assets | 3,067 | 2,244 | |||||||||
| Valuation allowance | (3) | (2,241) | |||||||||
| Total deferred tax assets, net of valuation allowance | $ | 3,064 | $ | 3 | |||||||
| Deferred tax liabilities | $ | — | $ | — | |||||||
| Total deferred tax assets and liabilities | $ | 3,064 | $ | 3 | |||||||
As of December 31, 2025 and 2024, the Company had federal and state net operating loss carry forwards of $1.4 billion and $1.2 billion, respectively. All federal net operating losses can be carried forward indefinitely, certain state net operating losses can be carried forward indefinitely, and others can be carried forward between 8 and 20 years.
As described in Note 10 — Stockholders' Equity, the Company acquires LLC Units in connection with exchanges with LLC Unitholders. During the years ended December 31, 2025 and 2024, the Company recognized a gross deferred tax asset of $277 million and $280 million, respectively, associated with the difference in basis in its investment in Carvana Group related to these acquisitions of LLC Units. Additionally, as described in Note 10 — Stockholders' Equity, the Company issues shares under the ATM Program and utilizes the proceeds from the issuance of Class A common stock to purchase Class A Units in
Carvana Group. During the years ended December 31, 2025 and 2024, the Company recognized a gross deferred tax asset of $1 million and $9 million, respectively, associated with the difference in basis in its investment in Carvana Group related to these acquisitions of LLC Units.
The Company's effective tax rate for the years ended December 31, 2025 and 2024 was a benefit of 312.9% and 1.0%, respectively.
Tax Receivable Agreement
Carvana Co. expects to obtain an increase in its share of the tax basis in the net assets of Carvana Group when LLC Units are exchanged by the LLC Unitholders and other qualifying transactions. As described in Note 10 — Stockholders' Equity, each change in outstanding shares of Class A common stock results in a corresponding increase or decrease in Carvana Co.'s ownership of LLC Units. The Company intends to treat any exchanges of LLC Units as direct purchases of LLC interests for U.S. federal income tax purposes. These increases in tax basis may reduce the amounts that Carvana Co. would otherwise pay in the future to various taxing authorities. They may also decrease gains (or increase losses) on future dispositions of certain capital assets to the extent tax basis is allocated to those capital assets.
In connection with the IPO, the Company entered into a TRA. Under the TRA, the Company generally will be required to pay to the LLC Unitholders 85% of the amount of cash savings, if any, in U.S. federal, state or local tax that the Company actually realizes directly or indirectly (or are deemed to realize in certain circumstances) as a result of (i) certain tax attributes created as a result of any sales or exchanges (as determined for U.S. federal income tax purposes) to or with the Company of their interests in Carvana Group for shares of Carvana Co.'s Class A common stock or cash, including any basis adjustment relating to the assets of Carvana Group and (ii) tax benefits attributable to payments made under the TRA (including imputed interest). The Company expects to benefit from the remaining 15% of any tax benefits that it may actually realize. To the extent that the Company is unable to timely make payments under the TRA for any reason, such payments generally will be deferred and will accrue interest until paid.
If the Internal Revenue Service or a state or local taxing authority challenges the tax basis adjustments that give rise to payments under the TRA and the tax basis adjustments are subsequently disallowed, the recipients of payments under the agreement will not reimburse the Company for any payments the Company previously made to them. Any such disallowance would be taken into account in determining future payments under the TRA and would, therefore, reduce the amount of any such future payments. Nevertheless, if the claimed tax benefits from the tax basis adjustments are disallowed, the Company’s payments under the TRA could exceed its actual tax savings, and the Company may not be able to recoup payments under the TRA that were calculated on the assumption that the disallowed tax savings were available.
The TRA provides that if (i) certain mergers, asset sales, other forms of business combinations, or other changes of control were to occur, (ii) there is a material breach of any material obligations under the TRA; or (iii) the Company elects an early termination of the TRA, then the TRA will terminate and the Company's obligations, or the Company's successor’s obligations, under the TRA will accelerate and become due and payable, based on certain assumptions, including an assumption that the Company would have sufficient taxable income to fully utilize all potential future tax benefits that are subject to the TRA and that any LLC Units that have not been exchanged are deemed exchanged for the fair market value of the Company's Class A common stock at the time of termination.
In connection with the Company's conclusion that it was more likely than not that its deferred tax assets subject to the TRA would be realized, the Company determined it was probable its remaining TRA liability related to the tax savings it expects to realize from utilization of such deferred tax assets will be paid. As such, during the year ended December 31, 2025, the Company recorded TRA expense of $2.2 billion which was recorded to other expense (income), net in the accompanying consolidated statements of operations. As of December 31, 2025 and 2024, the Company recorded a TRA liability of $2.3 billion and $82 million, respectively, of which $1.7 billion and $61 million, respectively, is due to related parties. As of December 31, 2025 and 2024, $37 million and $17 million, respectively, is included in other current liabilities and $2.2 billion and $65 million, respectively, are included in other liabilities on the accompanying consolidated balance sheets.
Uncertain Tax Positions
Carvana Co. was formed in November 2016 and did not engage in any operations prior to the IPO and associated organizational transactions. Carvana Co. was not required to file 2016 tax returns and filed its first tax returns for the tax year 2017, the first year it became subject to examination by taxing authorities for U.S. federal and state income tax purposes.
Carvana Group, LLC is treated as a partnership for U.S. federal and state income tax purposes and its tax returns are subject to examination by taxing authorities. Carvana Group has filed income tax returns for years through 2024. These returns are subject to examination by the taxing authorities in the respective jurisdictions, generally for three or four years after they were filed.
The Company recognizes uncertain income tax positions when it is more-likely-than-not the position will be sustained upon examination. As of December 31, 2025 and 2024, the Company has not identified any uncertain tax positions and has not recognized any related reserves.
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.