Meritage Homes CORPMTH

Meritage Homes CORP Income Taxes Disclosure

10-KFiled Feb 13, 20265 min read
INCOME TAXES
Components of the income tax provision are as follows (in thousands):
 
 Years Ended December 31,
 202520242023
Current taxes:
Federal$105,522 $166,028 $170,306 
State25,096 41,101 41,837 
130,618 207,129 212,143 
Deferred taxes:
Federal1,481 6,013 (1,888)
State(512)3,542 427 
969 9,555 (1,461)
Total$131,587 $216,684 $210,682 

Income taxes for the years ended December 31, 2025, 2024 and 2023, differ from the expected amounts computed using the federal statutory income tax rate of 21% as a result of the following (in thousands):
 Years Ended December 31,
 202520242023
AmountPercentAmountPercentAmountPercent
Expected taxes at current federal statutory income tax rate$122,766 21.0 %$210,603 21.0 %$199,380 21.0 %
State and local income taxes, net of federal income tax benefit (1)
19,421 3.3 %35,268 3.5 %33,389 3.5 %
Tax credits(10,161)(1.7)%(30,071)(3.0)%(25,219)(2.7)%
Nontaxable or nondeductible items87 — %1,891 0.2 %3,509 0.4 %
Other adjustment(526)(0.1)%(1,007)(0.1)%(377)— %
Income tax expense$131,587 22.5 %$216,684 21.6 %$210,682 22.2 %
(1) The states that contribute to the majority (greater than 50%) of the tax effect in this category include California, Arizona and Florida for 2025; California, Arizona, and Georgia for 2024; and California, Arizona, and Florida for 2023.

The amounts of cash taxes paid are as follows (in thousands):

 Years Ended December 31,
 202520242023
Federal$127,650 163,000 167,700 
State
California6,520 15,400 12,000 
All other states20,060 30,116 32,393 
Total income taxes, net of amounts refunded154,230 208,516 212,093 

In 2025, there were no state jurisdictions with cash taxes paid that equaled or exceeded 5% of total income taxes paid. In 2024 and 2023, California was the only jurisdiction with cash taxes paid that equaled or exceeded 5% of total income taxes paid.

Deferred tax assets and liabilities are netted on our balance sheet by tax jurisdiction. Net overall deferred tax assets for all jurisdictions are grouped and included as a separate asset. Net overall deferred tax liabilities for all jurisdictions are grouped and included in Accrued liabilities. At December 31, 2025, we have a net deferred tax asset of $53.3 million. We also have other net deferred tax liabilities of $9.5 million. Deferred tax assets and liabilities are comprised of timing differences (in thousands) as follows:
At December 31,
20252024
Deferred tax assets:
Real estate$27,441 $24,633 
Warranty reserve6,348 7,768 
Wages payable13,430 6,490 
Equity-based compensation5,858 7,575 
Accrued expenses202 94 
Lease liabilities14,392 13,264 
Capped Calls cost
9,048 12,545 
State operating loss carry forwards81— 
Other6,805 8,479 
Total deferred tax assets83,605 80,848 
Deferred tax liabilities:
Goodwill5,049 4,181 
Prepaids1,845 1,367 
ROU assets
13,891 13,071 
Fixed assets9,527 7,705 
Total deferred tax liabilities30,312 26,324 
Deferred tax assets, net53,293 54,524 
Other deferred tax liabilities - state franchise taxes9,534 9,795 
Net deferred tax assets and liabilities$43,759 $44,729 
At December 31, 2025 and December 31, 2024, we have no unrecognized tax benefits. We believe our current income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a material change. Our policy is to accrue interest and penalties on unrecognized tax benefits and include them in the provision for income taxes.
We determine our deferred tax assets and liabilities in accordance with ASC 740, Income Taxes ("ASC 740"). We evaluate our deferred tax assets, including the benefit from net operating losses ("NOLs"), by jurisdiction to determine if a valuation allowance is required. Companies must assess whether a valuation allowance should be established based on the consideration of all available evidence using a “more likely than not” standard with significant weight being given to evidence that can be objectively verified. This assessment considers, among other matters, the nature, frequency and severity of cumulative losses, forecasts of future profitability, the length of statutory carryforward periods, experiences with NOLs and experiences of utilizing tax credit carryforwards and tax planning alternatives. We have no federal NOLs or credit carryovers, and determined that no valuation allowance on our deferred tax assets is necessary at December 31, 2025.
On August 16, 2022, the IRA retroactively extended the energy tax credit to homes delivered from January 1, 2022 through December 31, 2032, modified the energy standards required to qualify for the tax credit and increased the per-home credit amount starting in 2023. In accordance with these regulations, we recorded a tax benefit of $5.6 million, $29.1 million, and $22.7 million during the years ended December 31, 2025, 2024 and 2023, respectively, based on our estimate for qualifying new energy efficient homes that we closed in those years. The decrease in the tax benefit recognized in 2025 compared to prior years was primarily due to more stringent ENERGY STAR® program requirements.

The IRA also created a 15% corporate alternative minimum tax on certain profits and creates a 1% excise tax on stock repurchases. These provisions do not have a material impact on our financial statements.

During the fourth quarter of 2025, we entered into a tax credit transfer agreement to purchase 2025 §45Z alternative clean fuel production credits and we recognized a tax benefit representing the purchase discount between the credit value and the total purchase price. We expect to claim the full §45Z credit on our 2025 federal income tax return.

Our future deferred tax asset realization depends on sufficient taxable income in the carryforward periods under existing tax laws. Federal NOL carryforwards may be used to offset future taxable income indefinitely. State NOL carryforwards may be used to offset future taxable income for a period ranging from 5 to 20 years, depending on the state jurisdiction. At December 31, 2025, we had no remaining unutilized federal NOL carryforward or federal tax credits, and had tax benefits of $0.1 million state NOL carryforwards that begin to expire in 2041.

At December 31, 2025, we have $12.8 million current income taxes receivable and no current income taxes payable. Income taxes receivable consists of current federal and state tax accruals, net of current energy tax credits, §45Z transferrable credit and estimated tax payments in excess of income tax liability accrued at December 31, 2025. We have accrued income taxes of $12.1 million recorded in Accrued liabilities on the accompanying consolidated balance sheets at December 31, 2025, which consist primarily of state franchise tax and federal excise tax on stock repurchases.

We conduct business and are subject to tax in the U.S. both federally and in several states. With few exceptions, we are no longer subject to U.S. federal, state, or local income tax examinations by taxing authorities for years prior to 2021. We do not have any Federal or state income tax examinations pending resolution at this time.

Historical Timeline

Fiscal YearFiled
2025Feb 13, 2026Showing above
2024Feb 20, 2025
2023Feb 14, 2024
2022Feb 15, 2023
2021Feb 16, 2022
2020Feb 12, 2021
2019Feb 18, 2020
2018Feb 15, 2019
2017Feb 12, 2018
2016Feb 17, 2017
2015Feb 17, 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.

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