MasterBrand, Inc.MBC
MasterBrand, Inc. Income Taxes Disclosure
Income Taxes
The components of income from continuing operations before income taxes were as follows:
| (U.S. Dollars presented in millions) | 2025 | 2024 | 2023 | |||||||||||||||||
| Domestic operations | $ | 26.6 | $ | 136.2 | $ | 213.2 | ||||||||||||||
| Foreign operations | 19.7 | 32.1 | 25.5 | |||||||||||||||||
| Income before income taxes | $ | 46.3 | $ | 168.3 | $ | 238.7 | ||||||||||||||
Income tax expense in the consolidated statements of income consisted of the following:
| (U.S. Dollars presented in millions) | 2025 | 2024 | 2023 | |||||||||||||||||
| Current tax expense | ||||||||||||||||||||
| Federal | $ | (1.1) | $ | 26.8 | $ | 44.2 | ||||||||||||||
| State | 3.2 | 5.0 | 9.3 | |||||||||||||||||
| Foreign | 4.7 | 6.0 | 8.9 | |||||||||||||||||
| Total current tax expense | 6.8 | 37.8 | 62.4 | |||||||||||||||||
| Deferred tax expense (benefit) | ||||||||||||||||||||
| Federal | 15.6 | 4.7 | 1.2 | |||||||||||||||||
| State | (2.6) | (0.4) | (2.1) | |||||||||||||||||
| Foreign | (0.2) | 0.3 | (4.8) | |||||||||||||||||
| Total deferred tax expense (benefit) | 12.8 | 4.6 | (5.7) | |||||||||||||||||
| Total income tax expense | $ | 19.6 | $ | 42.4 | $ | 56.7 | ||||||||||||||
A reconciliation of the U.S. federal statutory tax rate to the Company’s effective income tax rate is as follows, in accordance with the updated requirements of ASU 2023-09 for the year ended December 28, 2025:
| Component | $ | % | ||||||||||||
| Income taxes at U.S. federal statutory income tax rate | $ | 9.7 | 21.0 | % | ||||||||||
| State and local income taxes, net | 0.5 | 1.1 | ||||||||||||
| Foreign tax effects | ||||||||||||||
| Singapore | ||||||||||||||
| Singapore - Maquiladora tax benefit | (1.3) | (2.8) | ||||||||||||
| Singapore - Other foreign tax effects | (0.8) | (1.7) | ||||||||||||
| Mexico | ||||||||||||||
| Mexico - Nondeductible benefits | 0.8 | 1.7 | ||||||||||||
| Mexico - Inflationary | (0.8) | (1.7) | ||||||||||||
| Mexico - Maquiladora credit | (0.7) | (1.5) | ||||||||||||
| Mexico - Maquiladora tax | 2.3 | 5.0 | ||||||||||||
| Mexico -Statutory rate differential | 0.6 | 1.2 | ||||||||||||
| Other jurisdictions | ||||||||||||||
| Other foreign tax effects | 0.5 | 1.1 | ||||||||||||
| Tax credits | ||||||||||||||
R&D tax credits | (1.5) | (3.2) | ||||||||||||
| Change in valuation allowance | 4.4 | 9.4 | ||||||||||||
| Nontaxable or nondeductible items | ||||||||||||||
| Nondeductible compensation | 1.5 | 3.2 | ||||||||||||
| Acquisition-related transaction costs | 3.6 | 7.8 | ||||||||||||
| Other nontaxable or nondeductible items | 0.7 | 1.5 | ||||||||||||
| Changes in unrecognized tax benefits | (0.6) | (1.2) | ||||||||||||
| Other | ||||||||||||||
Deferred impact- Subpart F Full Inclusion | 2.0 | 4.3 | ||||||||||||
| Adjustment to prior period provision | (1.5) | (3.2) | ||||||||||||
| Other items | 0.2 | 0.3 | ||||||||||||
| Total tax provision and effective tax rate | $ | 19.6 | 42.3 | % | ||||||||||
(a) The states that contribute to the majority (greater than 50 percent) of the tax effect in this category include California and Georgia. State and local income taxes also include state tax credits of $1.2 million.
In 2025, the Company recorded a valuation allowance charge of $4.4 million primarily based on an inability to demonstrate that sufficient future foreign-source taxable income in the general basket category will be available to absorb foreign tax credit carryovers within the ten-year carryforward period. The Company also had nondeductible acquisition-related transaction costs incurred as a result of the pending merger with American Woodmark, which resulted in additional income tax expense of $4.3 million in 2025.
As previously disclosed for the years ended December 29, 2024, and December 31, 2023, prior to the adoption of ASU 2023-09, the effective income tax rate differs from the statutory federal income tax rate as follows:
| (in percentages) | 2024 | 2023 | ||||||||||||
| Income tax expense at U.S. federal statutory income tax rate | 21.0 | % | 21.0 | % | ||||||||||
| State and local income taxes, net of federal tax benefit | 2.3 | 2.2 | ||||||||||||
| Foreign taxes at a different rate than U.S. federal statutory income tax rate | 0.9 | 0.6 | ||||||||||||
| Valuation allowance | 1.6 | (0.1) | ||||||||||||
| Unrecognized tax benefits | (0.4) | — | ||||||||||||
| Foreign legislative exclusion | (1.1) | — | ||||||||||||
| Miscellaneous other, net | 0.9 | 0.1 | ||||||||||||
| Effective income tax rate | 25.2 | % | 23.8 | % | ||||||||||
For 2025, the Company’s effective tax rate was 42.3 percent, compared to an effective tax rate of 25.2 percent for 2024. The increase in the effective tax rate between the periods was primarily due to the increase in the valuation allowance and nondeductible acquisition-related transaction costs, as well as changes in foreign income inclusions and changes in book income, partially offset by lower state and local income taxes and the mix of earnings in jurisdictions with differing tax rates.
The 2025 effective income tax rate of 42.3 percent compared to the U.S. federal statutory rate of 21.0 percent was primarily the result of the increase in the valuation allowance and nondeductible acquisition-related transaction costs, as well as changes in foreign income inclusions, nondeductible compensation and net changes in state and local income taxes, partially offset by tax credits and the mix of earnings in jurisdictions with differing tax rates.
For 2024, the Company’s effective tax rate was 25.2 percent, compared to an effective tax rate of 23.8 percent for 2023. The increase in effective tax rate was primarily the result of an increase in the valuation allowance, nondeductible acquisition-related costs to the Supreme acquisition and foreign income inclusions net of foreign tax credits, partially offset by foreign exclusions, return-to provision adjustments and the release of specific uncertain tax positions.
For the year ended December 28, 2025, cash income taxes paid directly to taxing authorities, net of refunds received, were as follows:
| (U.S. Dollars presented in millions) | 2025 | |||||||
| Federal | $ | 19.8 | ||||||
| State | 3.7 | |||||||
| Foreign | ||||||||
| Mexico | 3.6 | |||||||
| Canada | 1.9 | |||||||
| Other foreign | (0.2) | |||||||
| Total income taxes paid | $ | 28.8 | ||||||
For the years ended December 29, 2024 and December 31, 2023, income taxes paid directly to taxing authorities, net of refunds received, were $40.7 million and $68.5 million, respectively.
Deferred income tax assets and liabilities are provided for the impact of temporary differences between amounts of assets and liabilities recognized for financial reporting purposes and the bases of such assets and liabilities as measured by tax laws. These temporary differences result in taxable or deductible amounts in future years. As of each reporting date, the Company’s management considers all evidence, both positive and negative, that could impact management’s view regarding the future realization of deferred tax assets. The negative evidence for the 2025 valuation allowance was primarily a result of insufficient future foreign-source taxable income in the general basket category within the ten-year carryover period, as discussed above.
The components of net deferred tax assets (liabilities) as of December 28, 2025 and December 29, 2024 were as follows:
| (U.S. Dollars presented in millions) | 2025 | 2024 | ||||||||||||
| Deferred tax assets: | ||||||||||||||
| Operating lease liabilities | $ | 45.6 | $ | 14.3 | ||||||||||
| Other accrued expenses | 14.4 | 14.4 | ||||||||||||
| Compensation and benefits | 13.4 | 8.1 | ||||||||||||
| Net operating loss and other tax carryforwards | 11.7 | 11.2 | ||||||||||||
| Accounts receivable | 13.4 | 11.1 | ||||||||||||
| Interest carryforward | 5.7 | 9.6 | ||||||||||||
| Capitalized inventories | 4.8 | 4.8 | ||||||||||||
| R&D Capitalization | 0.1 | 10.2 | ||||||||||||
| Defined benefit plans | — | 0.2 | ||||||||||||
| Other | 0.4 | 0.4 | ||||||||||||
| Valuation allowance | (8.1) | (3.7) | ||||||||||||
| Total deferred tax assets (net of valuation allowance) | 101.4 | 80.6 | ||||||||||||
| Deferred tax liabilities: | ||||||||||||||
| Intangible assets | (178.7) | (176.7) | ||||||||||||
| Fixed assets | (44.7) | (44.0) | ||||||||||||
| Operating lease assets | (43.3) | (12.5) | ||||||||||||
| Prepaid marketing | (3.1) | (3.0) | ||||||||||||
| Other | (0.2) | (0.2) | ||||||||||||
| Total deferred tax liabilities | (270.0) | (236.4) | ||||||||||||
| Net deferred tax liability | $ | (168.6) | $ | (155.8) | ||||||||||
Deferred taxes were classified in the Consolidated Balance Sheets as of December 28, 2025 and December 29, 2024 as follows:
| (U.S. Dollars presented in millions) | 2025 | 2024 | ||||||||||||
| Other assets | $ | 3.0 | $ | 2.9 | ||||||||||
| Deferred income taxes | (171.6) | (158.7) | ||||||||||||
| Net deferred tax liability | $ | (168.6) | $ | (155.8) | ||||||||||
As of December 28, 2025 and December 29, 2024, the Company had deferred tax assets related to net operating losses and other tax credit carryforwards of $11.7 million and $11.2 million, respectively, including foreign tax credit carryforwards of $8.0 million and $8.7 million, respectively. Net operating losses generally expire between 2028 and 2040, foreign tax credits expire between 2029 and 2034 and the other tax credit carryforwards expire between 2030 and 2035. R&D capitalization commenced in 2022 and pertains to the 2017 Tax Cuts and Jobs Act eliminating the immediate expensing of research and experimental expenditures and requiring taxpayers to capitalize their expenditures over a period of years. On July 4, 2025, the OBBBA was enacted into U.S. law. The OBBBA includes changes to several corporate tax provisions, including tax deductions for qualified research expenditures allowing immediate expensing of prior year R&D capitalized.
The Company evaluated its ability to realize tax benefits associated with deferred tax assets and concluded, based on all available positive and negative evidence, that it is more likely than not that a portion of the deferred tax assets are not expected to be realized. Accordingly, a valuation allowance of $8.1 million and $3.7 million as of December 28, 2025 and December 29, 2024, respectively, was recorded to reduce the deferred tax assets related to the net operating losses and tax credit carryforwards.
A reconciliation of the Company’s gross change in unrecognized tax benefits (“UTBs”), including accrued interest and penalties, is as follows:
| (U.S. Dollars presented in millions) | 2025 | 2024 | 2023 | |||||||||||||||||
| Unrecognized tax benefits—beginning of year | $ | 0.5 | $ | 0.9 | $ | 1.2 | ||||||||||||||
| Gross additions—current year tax positions | — | — | — | |||||||||||||||||
| Gross additions—prior year tax positions | — | — | — | |||||||||||||||||
| Gross reductions—prior year tax positions | (0.3) | (0.4) | (0.3) | |||||||||||||||||
| Gross reductions—settlements with taxing authorities | — | — | — | |||||||||||||||||
| Unrecognized tax benefits—end of year | $ | 0.2 | $ | 0.5 | $ | 0.9 | ||||||||||||||
| Unrecognized tax benefits—accrued interest and penalties | 0.2 | 0.5 | 0.7 | |||||||||||||||||
| Gross unrecognized tax benefits | $ | 0.4 | $ | 1.0 | $ | 1.6 | ||||||||||||||
In 2025 and 2024, the Company released $0.3 million and $0.4 million of prior year tax positions due to the expiration of the statute of limitations, respectively.
Liabilities related to UTBs, including interest and penalties, are reported as a liability within the Consolidated Balance Sheet. The Company regularly assesses the likelihood of an adverse outcome resulting from examinations to determine the adequacy of its tax reserves.
The Company classifies interest and penalty accruals related to UTBs as income tax expense. In 2025, the Company recognized interest and penalty benefit of approximately $0.3 million. In 2024 and 2023, the Company recognized interest and penalty benefit of approximately $0.2 million and expense of $0.2 million, respectively.
As of December 28, 2025, the Company believed that it is more-likely-than-not that the tax positions it has taken would be sustained upon the resolution of its audits resulting in no material impact on its consolidated financial position, results of operations and cash flows. However, the final determination with respect to any tax audits, and any related litigation, could be materially different from the Company’s estimates or from its historical income tax provisions and/or accruals and could have a material effect on operating results or cash flows in the periods for which that determination is made. In addition, future period earnings may be adversely impacted by litigation costs, settlements, interest and/or penalty assessments.
For pre-Separation periods, the Company’s federal income tax returns, and various state income tax returns that included operations of the Company, were filed by Fortune Brands and remain open and subject to examination for tax years after 2021. In addition to the U.S., the Company has tax years that remain open and subject to examination by tax authorities in Canada for years after 2020 and in Mexico for years after 2019.
As of December 28, 2025, the Company is not permanently reinvested with respect to all earnings generated by foreign operations. There was no material deferred tax liability recorded for foreign and state tax costs associated with the future remittance of these undistributed earnings. We expect to have the ability to repatriate available non-U.S. cash without significant additional tax cost.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 13, 2026 | Showing above |
| 2024 | Feb 19, 2025 | |
| 2023 | Feb 27, 2024 | |
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.