First American Financial Corp Income Taxes Disclosure
NOTE 14. Income Taxes:
For the years ended December 31, 2025, 2024 and 2023, domestic and foreign pretax income, before noncontrolling interests, were $684.4 million and $141.8 million, $83.2 million and $82.2 million, and $193.4 million and $81.0 million, respectively.
Income taxes are summarized as follows:
|
|
Year ended December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
|
|
(in millions) |
|
|||||||||
Current: |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
$ |
24.2 |
|
|
$ |
(0.7 |
) |
|
$ |
55.4 |
|
State |
|
|
11.7 |
|
|
|
6.1 |
|
|
|
2.8 |
|
Foreign |
|
|
27.3 |
|
|
|
17.3 |
|
|
|
11.6 |
|
|
|
|
63.2 |
|
|
|
22.7 |
|
|
|
69.8 |
|
Deferred: |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
|
114.6 |
|
|
|
21.4 |
|
|
|
(8.6 |
) |
State |
|
|
17.5 |
|
|
|
(16.6 |
) |
|
|
(10.9 |
) |
Foreign |
|
|
5.7 |
|
|
|
5.3 |
|
|
|
8.6 |
|
|
|
|
137.8 |
|
|
|
10.1 |
|
|
|
(10.9 |
) |
|
|
$ |
201.0 |
|
|
$ |
32.8 |
|
|
$ |
58.9 |
|
The Company’s actual income tax expense differs from the expense computed by applying the federal statutory income tax rate of 21% for the years ended December 31, 2025, 2024 and 2023. A reconciliation of these differences is as follows:
|
|
Year ended December 31, |
|
|||||||||||||||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||||||||||||||
|
|
(dollars in millions) |
|
|||||||||||||||||||||
U.S. federal statutory tax |
|
$ |
173.5 |
|
|
|
21.0 |
% |
|
$ |
34.7 |
|
|
|
21.0 |
% |
|
$ |
57.6 |
|
|
|
21.0 |
% |
State and local income taxes, net of |
|
|
23.0 |
|
|
|
2.8 |
|
|
|
(8.3 |
) |
|
|
(5.0 |
) |
|
|
(6.4 |
) |
|
|
(2.3 |
) |
Foreign tax effects |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Australia |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
IFRS 17 adjustments |
|
|
(2.1 |
) |
|
|
(0.3 |
) |
|
|
2.1 |
|
|
|
1.3 |
|
|
|
— |
|
|
|
— |
|
Other |
|
|
2.7 |
|
|
|
0.3 |
|
|
|
(2.4 |
) |
|
|
(1.5 |
) |
|
|
(1.1 |
) |
|
|
(0.4 |
) |
Canada |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Statutory tax rate difference between |
|
|
(4.4 |
) |
|
|
(0.5 |
) |
|
|
(3.3 |
) |
|
|
(2.0 |
) |
|
|
(2.3 |
) |
|
|
(0.8 |
) |
Provincial and territorial income taxes (b) |
|
|
8.4 |
|
|
|
1.0 |
|
|
|
6.3 |
|
|
|
3.8 |
|
|
|
4.4 |
|
|
|
1.6 |
|
IFRS 17 adjustments |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3.1 |
|
|
|
1.1 |
|
Other |
|
|
0.1 |
|
|
|
— |
|
|
|
(0.4 |
) |
|
|
(0.2 |
) |
|
|
(1.2 |
) |
|
|
(0.4 |
) |
India |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Withholding tax |
|
|
2.0 |
|
|
|
0.2 |
|
|
|
2.0 |
|
|
|
1.2 |
|
|
|
— |
|
|
|
— |
|
Other |
|
|
1.4 |
|
|
|
0.2 |
|
|
|
1.2 |
|
|
|
0.7 |
|
|
|
3.1 |
|
|
|
1.1 |
|
United Kingdom |
|
|
(4.5 |
) |
|
|
(0.5 |
) |
|
|
0.4 |
|
|
|
0.2 |
|
|
|
0.6 |
|
|
|
0.2 |
|
Other foreign jurisdictions |
|
|
(0.4 |
) |
|
|
— |
|
|
|
(0.6 |
) |
|
|
(0.4 |
) |
|
|
0.3 |
|
|
|
0.1 |
|
Effect of changes in tax laws or rates enacted |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Effect of cross-border tax laws |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Global intangible low-taxed income |
|
|
0.4 |
|
|
|
— |
|
|
|
(0.9 |
) |
|
|
(0.5 |
) |
|
|
0.1 |
|
|
|
— |
|
Foreign branch income |
|
|
3.5 |
|
|
|
0.4 |
|
|
|
3.3 |
|
|
|
2.0 |
|
|
|
2.6 |
|
|
|
0.9 |
|
Unremitted foreign earnings |
|
|
3.4 |
|
|
|
0.4 |
|
|
|
(1.4 |
) |
|
|
(0.8 |
) |
|
|
1.2 |
|
|
|
0.4 |
|
Tax credits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Research and development tax credits |
|
|
(5.6 |
) |
|
|
(0.7 |
) |
|
|
(11.1 |
) |
|
|
(6.7 |
) |
|
|
(17.3 |
) |
|
|
(6.3 |
) |
Foreign tax credits |
|
|
(4.6 |
) |
|
|
(0.6 |
) |
|
|
(3.5 |
) |
|
|
(2.1 |
) |
|
|
— |
|
|
|
— |
|
Changes in valuation allowances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Capital loss carryover |
|
|
— |
|
|
|
— |
|
|
|
12.2 |
|
|
|
7.4 |
|
|
|
7.7 |
|
|
|
2.8 |
|
Foreign tax credits |
|
|
1.3 |
|
|
|
0.2 |
|
|
|
(0.8 |
) |
|
|
(0.5 |
) |
|
|
— |
|
|
|
— |
|
Nontaxable or nondeductible items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Tax exempt interest income |
|
|
(6.7 |
) |
|
|
(0.8 |
) |
|
|
(6.4 |
) |
|
|
(3.9 |
) |
|
|
(7.2 |
) |
|
|
(2.5 |
) |
Meals and entertainment |
|
|
2.6 |
|
|
|
0.3 |
|
|
|
2.2 |
|
|
|
1.3 |
|
|
|
1.7 |
|
|
|
0.6 |
|
Key man life insurance |
|
|
(2.1 |
) |
|
|
(0.3 |
) |
|
|
(2.2 |
) |
|
|
(1.3 |
) |
|
|
(1.7 |
) |
|
|
(0.6 |
) |
Share-based compensation |
|
|
4.1 |
|
|
|
0.5 |
|
|
|
2.3 |
|
|
|
1.4 |
|
|
|
— |
|
|
|
— |
|
Other |
|
|
1.1 |
|
|
|
0.1 |
|
|
|
0.7 |
|
|
|
0.4 |
|
|
|
3.7 |
|
|
|
1.3 |
|
Changes in unrecognized tax benefits |
|
|
3.6 |
|
|
|
0.4 |
|
|
|
6.8 |
|
|
|
4.1 |
|
|
|
10.7 |
|
|
|
3.9 |
|
Other adjustments |
|
|
0.3 |
|
|
|
0.2 |
|
|
|
(0.1 |
) |
|
|
(0.1 |
) |
|
|
(0.7 |
) |
|
|
(0.2 |
) |
|
|
$ |
201.0 |
|
|
|
24.3 |
% |
|
$ |
32.8 |
|
|
|
19.8 |
% |
|
$ |
58.9 |
|
|
|
21.5 |
% |
The Company’s effective income tax rates (income tax expense as a percentage of income before income taxes) were 24.3%, 19.8%, and 21.5% for the years ended December 31, 2025, 2024, and 2023, respectively. The effective income tax rates differ from the federal statutory rate as a result of state and foreign income taxes for which the Company is liable, as well as
permanent differences between amounts reported for financial statement purposes and amounts reported for income tax purposes, including the recognition of excess tax benefits or tax deficiencies associated with share-based payment transactions through income tax expense. In addition, the effective tax rates reflect tax credits claimed in current and prior years. The effective income tax rates for 2024 and 2023 also reflect the impact on pretax earnings from impairment losses on the Company’s venture investment portfolio and adjustments to the valuation allowance resulting from losses on certain equity investments and, for 2024, realized losses from sales of debt securities in an unrealized loss position in connection with the Company’s portfolio rebalancing project.
The primary components of temporary differences that give rise to the Company’s net deferred tax liability are as follows:
|
|
December 31, |
|
|||||
|
|
2025 |
|
|
2024 |
|
||
|
|
(in millions) |
|
|||||
Deferred tax assets: |
|
|
|
|
|
|
||
Deferred revenue |
|
$ |
9.9 |
|
|
$ |
10.4 |
|
Employee benefits |
|
|
109.9 |
|
|
|
103.9 |
|
Bad debt reserves |
|
|
9.1 |
|
|
|
7.9 |
|
Pension |
|
|
11.7 |
|
|
|
11.3 |
|
Net operating loss carryforward |
|
|
17.5 |
|
|
|
27.6 |
|
Foreign tax credit |
|
|
3.0 |
|
|
|
3.5 |
|
Operating lease liabilities |
|
|
44.4 |
|
|
|
47.1 |
|
Investments in affiliates |
|
|
15.6 |
|
|
|
17.2 |
|
Securities |
|
|
49.4 |
|
|
|
124.1 |
|
Other |
|
|
19.2 |
|
|
|
17.5 |
|
|
|
|
289.7 |
|
|
|
370.5 |
|
Valuation allowance |
|
|
(29.4 |
) |
|
|
(27.9 |
) |
|
|
|
260.3 |
|
|
|
342.6 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
||
Depreciable and amortizable assets |
|
|
(378.0 |
) |
|
|
(264.6 |
) |
Claims and related salvage |
|
|
(129.3 |
) |
|
|
(119.2 |
) |
Operating lease assets |
|
|
(41.3 |
) |
|
|
(43.2 |
) |
Unremitted foreign earnings |
|
|
(15.0 |
) |
|
|
(10.9 |
) |
|
|
|
(563.6 |
) |
|
|
(437.9 |
) |
Net deferred tax asset (liability) |
|
$ |
(303.3 |
) |
|
$ |
(95.3 |
) |
At December 31, 2025, the Company had available a $1.4 million foreign tax credit carryover, net of a valuation allowance, and expects to utilize this credit within the carryover period.
At December 31, 2025, the Company had available net operating loss carryforwards for income tax purposes totaling $269.4 million, consisting of federal, state and foreign losses of $15.5 million, $244.3 million and $9.6 million, respectively. Of the aggregate net operating losses, $41.0 million has an indefinite expiration and $228.4 million will begin to expire in various years starting in .
The Company evaluates the realizability of its deferred tax assets by assessing the valuation allowance and makes adjustments to the allowance as necessary. The factors used by the Company in assessing the likelihood of realization of its deferred tax assets include forecasts of future taxable income and available tax planning strategies that could be implemented. The Company’s ability to achieve forecasted taxable income in the applicable taxing jurisdictions could affect the ultimate realization of its deferred tax assets. At December 31, 2025 and 2024, the Company carried valuation allowances of $29.4 million and $27.9 million, respectively. Of these amounts, $24.7 million related to capital losses in both 2025 and 2024, with remaining valuation allowances of $4.7 million and $3.2 million, respectively, related to net operating losses and other deferred tax assets. The increase in the overall valuation allowance during 2025 was primarily due to the Company’s assessment of its ability to realize tax benefits related to other deferred tax assets. Based on future operating results in certain jurisdictions, it is possible that the current valuation allowance positions of those jurisdictions could be adjusted during the next 12 months.
Income taxes paid are summarized as follows:
|
|
Year ended December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
|
|
(in millions) |
|
|||||||||
Income taxes paid (refunded): |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
$ |
17.9 |
|
|
$ |
(10.5 |
) |
|
$ |
96.1 |
|
State |
|
|
5.7 |
|
|
|
(4.1 |
) |
|
|
9.0 |
|
Foreign |
|
|
27.9 |
|
|
|
13.1 |
|
|
|
14.9 |
|
|
|
$ |
51.5 |
|
|
$ |
(1.5 |
) |
|
$ |
120.0 |
|
Income taxes paid (net of refunds) exceeded 5 percent of total income tax paid (net of refunds) in the following jurisdictions:
|
|
Year ended December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
|
|
(in millions) |
|
|||||||||
Federal |
|
$ |
17.9 |
|
|
$ |
(10.5 |
) |
|
$ |
96.1 |
|
State |
|
|
|
|
|
|
|
|
|
|||
Arizona |
|
* |
|
|
|
(0.1 |
) |
|
* |
|
||
California |
|
* |
|
|
|
(10.5 |
) |
|
* |
|
||
Florida |
|
* |
|
|
|
3.4 |
|
|
* |
|
||
Idaho |
|
* |
|
|
|
0.4 |
|
|
* |
|
||
Illinois |
|
* |
|
|
|
0.6 |
|
|
* |
|
||
Louisiana |
|
* |
|
|
|
0.2 |
|
|
* |
|
||
Maryland |
|
* |
|
|
|
0.1 |
|
|
* |
|
||
Montana |
|
* |
|
|
|
(0.1 |
) |
|
* |
|
||
New York |
|
* |
|
|
|
0.6 |
|
|
* |
|
||
Oregon |
|
* |
|
|
|
0.4 |
|
|
* |
|
||
Pennsylvania |
|
* |
|
|
|
0.1 |
|
|
* |
|
||
Tennessee |
|
* |
|
|
|
0.2 |
|
|
* |
|
||
Texas |
|
* |
|
|
|
0.5 |
|
|
* |
|
||
|
|
|
|
|
|
|
|
|
|
|||
Foreign |
|
|
|
|
|
|
|
|
|
|||
Australia |
|
* |
|
|
|
0.9 |
|
|
* |
|
||
New Zealand |
|
* |
|
|
|
0.1 |
|
|
* |
|
||
India |
|
|
5.4 |
|
|
|
5.8 |
|
|
8.6 |
|
|
Canada |
|
|
17.6 |
|
|
|
3.2 |
|
|
* |
|
|
England |
|
|
5.4 |
|
|
|
3.1 |
|
|
* |
|
|
* Jurisdiction below the threshold for the period presented.
Effective in 2024, the Company is subject to international anti-base erosion rules that assess a minimum tax rate of 15% in the jurisdictions in which it operates. Commonly known as “Pillar II,” these rules apply to large multinational enterprises and are designed to address the tax challenges arising from the globalization and digitalization of the economy. The Company has calculated the minimum tax on a jurisdiction-by-jurisdiction basis and has determined that the resulting tax is not material to its financial results.
The vesting of RSUs represents a tax benefit that has been reflected as a reduction to income taxes payable and income tax expense for the years ended December 31, 2025, 2024 and 2023. The tax benefits recorded were $0.8 million, $0.3 million and $0.7 million for the years ended December 31, 2025, 2024 and 2023, respectively.
As of December 31, 2025, 2024 and 2023, the liability for income taxes associated with uncertain tax positions was $34.4 million, $31.6 million and $12.4 million, respectively. The net increases in 2025 and 2024 were primarily attributable to positions taken on the Company’s tax returns for current and prior years. The liabilities could be reduced by $3.7 million as of both December 31, 2025 and 2024, and $0.8 million as of December 31, 2023, due to offsetting tax benefits associated with the correlative effects of potential adjustments, including timing adjustments and state income taxes. The net liability, if recognized, would favorably affect the Company’s effective income tax rate.
A reconciliation of the beginning and ending amounts of unrecognized tax benefits for the years ended December 31, 2025, 2024 and 2023 is as follows:
|
|
Year ended December 31, |
|
|||||||||
|
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
|
|
(in millions) |
|
|||||||||
Unrecognized tax benefits—beginning balance |
|
$ |
31.6 |
|
|
$ |
12.4 |
|
|
$ |
3.2 |
|
Gross increases—prior period tax positions |
|
|
0.6 |
|
|
|
14.8 |
|
|
|
8.4 |
|
Gross increases—current period tax positions |
|
|
2.5 |
|
|
|
4.4 |
|
|
|
5.2 |
|
Settlements with taxing authorities |
|
|
(0.3 |
) |
|
|
— |
|
|
|
(4.4 |
) |
Unrecognized tax benefits—ending balance |
|
$ |
34.4 |
|
|
$ |
31.6 |
|
|
$ |
12.4 |
|
The Company’s continuing practice is to recognize interest and penalties related to uncertain tax positions in income tax expense. Accrued interest and penalties, net of tax benefits, related to uncertain tax positions as of December 31, 2025, 2024, and 2023, were not material.
The Company, or one of its subsidiaries, files income tax returns in the U.S. federal jurisdiction, various state jurisdictions and in various non-U.S. jurisdictions. The primary non-federal jurisdictions are California, Canada, India and the United Kingdom. As of December 31, 2025, the Company is generally no longer subject to income tax examinations for U.S. federal, state and non-U.S. jurisdictions for years prior to 2022, 2019 and 2014, respectively.
The Company records a liability for potential tax assessments based on its estimate of the potential exposure. New tax laws and new interpretations of laws and rulings by taxing authorities may affect the liability for potential tax assessments. Due to the subjectivity and complex nature of the underlying issues, actual payments or assessments may differ from estimates. To the extent that the Company’s estimates differ from actual payments or assessments, income tax expense could change. The Company’s income tax returns in several jurisdictions are being examined by various taxing authorities. The Company believes that adequate amounts of tax and related interest from any adjustments that may result from these examinations have been provided for.
Public Law 119-21, popularly known as the “One Big Beautiful Bill Act” (“OBBBA”), was signed into law on July 4, 2025. This legislation includes a broad range of tax reform provisions affecting businesses, with certain provisions effective January 1, 2025. The Company anticipates an impact to its deferred tax liability and income tax payable, primarily related to the provisions for 100% bonus depreciation for assets acquired and placed in service after January 19, 2025 and full expensing of domestic research and experimental expenditures for tax years from 2022 to 2025. With respect to full expensing, the Company expects to claim additional current year tax deductions of $412.3 million; the resulting $86.6 million impact reflects a timing-related reclassification between income tax payable and deferred tax balances. While the Company is still evaluating other provisions of the OBBBA, including those effective January 1, 2026, it does not expect them to have a material effect on its ongoing effective tax rate.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 18, 2026 | Showing above |
| 2024 | Feb 21, 2025 | |
| 2023 | Feb 21, 2024 | |
| 2022 | Feb 15, 2023 | |
| 2021 | Feb 17, 2022 | |
| 2020 | Feb 17, 2021 | |
| 2019 | Feb 18, 2020 | |
| 2018 | Feb 20, 2019 | |
| 2017 | Feb 16, 2018 | |
| 2016 | Feb 17, 2017 | |
| 2015 | Feb 19, 2016 | |
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.