Rocket Companies, Inc.RKT
Rocket Companies, Inc. Income Taxes Disclosure
Income Taxes
Income (loss) before income taxes consists of the following:
| Year Ended December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| U.S. | $ | 689,512 | $ | (380,052) | $ | 763,400 | |||||||||||
| Canada | (21,460) | (22,845) | (21,489) | ||||||||||||||
Total Income (loss) before income taxes | $ | 668,052 | $ | (402,897) | $ | 741,911 | |||||||||||
Provision for (benefit from) income taxes consists of the following:
| Year Ended December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| Current | |||||||||||||||||
| U.S. Federal | $ | 2,519 | $ | 3,286 | $ | 4,669 | |||||||||||
| State and local | 345 | 1,268 | 575 | ||||||||||||||
Canada | 8 | 410 | 560 | ||||||||||||||
| Total current | $ | 2,872 | $ | 4,964 | $ | 5,804 | |||||||||||
| Deferred | |||||||||||||||||
| U.S. Federal | $ | 7,891 | $ | (8,559) | $ | 3,671 | |||||||||||
| State and local | 21,649 | (9,159) | 32,659 | ||||||||||||||
| Canada | (188) | (63) | (156) | ||||||||||||||
| Total deferred | $ | 29,352 | $ | (17,781) | $ | 36,174 | |||||||||||
Total provision for (benefit from) income taxes | $ | 32,224 | $ | (12,817) | $ | 41,978 | |||||||||||
The reconciliation of the U.S. Federal statutory corporate income tax rate to the Company's effective tax rate consists of the following:
| Year Ended December 31, | |||||||||||||||||
| 2024 | 2023 | 2022 | |||||||||||||||
| U.S. Federal statutory tax rate | 21.00 | % | 21.00 | % | 21.00 | % | |||||||||||
Income/loss attributable to non-controlling interest | (20.26) | (12.21) | (23.77) | ||||||||||||||
| State and local taxes, net of U.S. Federal tax benefit | 2.70 | 1.57 | 3.70 | ||||||||||||||
| Valuation allowance | 1.69 | (5.01) | 3.15 | ||||||||||||||
| Nondeductible expenses | 1.19 | (1.90) | 1.21 | ||||||||||||||
Share-based compensation | (1.81) | (0.49) | 0.48 | ||||||||||||||
| Other | 0.31 | 0.22 | (0.11) | ||||||||||||||
| Effective tax rate | 4.82 | % | 3.18 | % | 5.66 | % | |||||||||||
For the years ended December 31, 2024, 2023 and 2022, the Company’s effective tax rate varies from the U.S. Federal statutory tax rate due to its organizational structure, state and local taxes inclusive of updates in its state and local deferred tax rate and valuation allowances for deferred tax benefits the Company does not believe are more likely than not to be realized.
Rocket Companies owns a portion of the units of Holdings, which is treated as a partnership for U.S. federal tax purposes and in most applicable jurisdictions for state and local income tax purposes. The remaining portion of Holdings is owned by the LLC Members. As a partnership, Holdings is not subject to U.S. federal and certain state and local income taxes. Any taxable income or loss generated by Holdings is passed through and included in the taxable income or loss of its members, including Rocket Companies, in accordance with the terms of the operating agreement of Holdings (the “Holdings Operating Agreement”). Rocket Companies is a C Corporation and is subject to U.S. federal, state and local income taxes with respect to its allocable share of any taxable income of Holdings.
Several subsidiaries of Holdings, such as Rocket Mortgage, Rocket Close and other subsidiaries, are single member LLC entities. As single member LLCs of Holdings, all taxable income or loss generated by these subsidiaries passes through and is included in the income or loss of Holdings. A provision for state and local income taxes is required for certain jurisdictions that tax single member LLCs as regarded entities. Other subsidiaries of Holdings, such as Rocket Title Insurance Company, LMB Mortgage Services and others, are treated as C Corporations and separately file and pay taxes apart from Holdings in various jurisdictions including U.S. federal, state, local and Canada.
The Inflation Reduction Act (“IRA”) was enacted on August 16, 2022. The IRA includes several provisions, one of which was the enactment of the corporate alternative minimum tax, which imposes a minimum tax on the adjusted financial statement income for an ‘applicable corporation’ as defined in the IRA. The corporate alternative minimum tax is effective for tax years beginning after December 31, 2022. There has been no material impact on the consolidated financial statements as of December 31, 2024 from the enactment of the corporate alternative minimum tax.
Deferred income taxes arise from temporary differences between the financial statement carrying amount and the tax basis of assets and liabilities. The Company’s deferred tax assets (liabilities) arise from the following components of temporary differences and carryforwards:
| December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Investment in partnership | $ | 464,276 | $ | 484,519 | |||||||
| Net operating loss and credit carryforwards | 207,004 | 172,818 | |||||||||
Other deferred tax assets and liabilities, net | (8,704) | (20,678) | |||||||||
| Valuation allowance | (158,197) | (102,069) | |||||||||
| Net deferred tax assets | $ | 504,379 | $ | 534,590 | |||||||
Deferred income taxes are presented in the Consolidated Balance Sheets based on their tax jurisdictions as follows:
| December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Deferred tax asset, net of valuation allowance | $ | 521,824 | $ | 550,149 | |||||||
| Deferred tax liability (included in Other liabilities) | (17,445) | (15,559) | |||||||||
| Net deferred tax asset | $ | 504,379 | $ | 534,590 | |||||||
As of December 31, 2024, the Company has a deferred tax asset before any valuation allowance of $680,021 and a deferred tax liability of $17,445. As of December 31, 2023, the Company had a deferred tax asset before any valuation allowance of $652,218 and a deferred tax liability of $15,559. The Company's deferred tax asset relates primarily to the difference in the tax and book basis of Rocket Companies’ investment in Holdings. The Company recognizes deferred tax assets to the extent it believes these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent results of operations. After considering all those factors, as of December 31, 2024 and 2023, respectively, management has recorded $158,197 and $102,069 of a valuation allowance for certain deferred tax assets the Company has determined are not more likely than not to be realized.
Changes in the deferred tax asset, net of valuation allowance for the investment in partnership recorded against Additional Paid-in Capital that occurred during the years ended December 31, 2024 and 2023 are included within Change in controlling interest of investment, net in the Consolidated Statements of Changes in Equity.
Of the $207,004 deferred tax assets related to the net operating loss and credit carryforwards at December 31, 2024, $47,977 will expire between 2031 and 2044 and $159,027 has no expiration.
The Company recognizes uncertain income tax positions when it is not more likely than not a tax position will be sustained upon examination. As of December 31, 2024 and 2023, the Company has not recognized any material uncertain tax positions. The Company accrues interest and penalties related to uncertain tax positions as a component of the income tax provision. No interest or penalties were recognized in income tax expense and no accrued interest or penalty was recorded for uncertain tax positions on the Consolidated Balance Sheets as of December 31, 2024 and 2023. Tax positions taken in tax years that remain open under the statute of limitations will be subject to examinations by tax authorities. With few exceptions, the Company is no longer subject to state or local examinations by tax authorities for tax years ended December 31, 2018 or prior.
Tax Receivable Agreement
The Company expects to obtain an increase in its share of the tax basis in the net assets of Holdings when Holdings Units are redeemed from or exchanged by the LLC Members. The Company intends to treat any redemptions and exchanges of Holdings Units as direct purchases of Holdings Units for U.S. federal income tax purposes. These increases in tax basis may reduce the amounts that the Company would otherwise pay in the future to various tax 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.
The Company has a Tax Receivable Agreement with the LLC Members that will obligate the Company to make payments to the LLC Members generally equal to 90% of the applicable cash tax savings that the Company actually realizes or in some cases is deemed to realize as a result of the tax attributes generated by (i) certain increases in our allocable share of the tax basis in Holdings’ assets resulting from (a) the purchases of Holdings Units (along with the corresponding shares of our Class D common stock or Class C common stock) from the LLC Members (or their transferees of Holdings Units or other assignees) using the net proceeds from our initial public offering or in any future offering, (b) exchanges by the LLC Members (or their transferees of Holdings Units or other assignees) of Holdings Units (along with the corresponding shares of our Class D common stock or Class C common stock) for cash or shares of our Class B common stock or Class A common stock, as applicable, or (c) payments under the Tax Receivable Agreement; (ii) tax benefits related to imputed interest deemed arising as a result of payments made under the Tax Receivable Agreement and (iii) disproportionate allocations (if any) of tax benefits to Holdings as a result of section 704(c) of the Code that relate to the reorganization transactions. The Company will retain the benefit of the remaining 10% of these tax savings.
The Company anticipates funding payments under the Tax Receivable Agreement from cash flows from operations, available cash and available borrowings. As of December 31, 2024 and 2023, respectively, the Company recognized a liability of $581,183 and $584,695 under the Tax Receivable Agreement after concluding that is the estimate of such TRA payments that would be paid based on its estimates of future taxable income. No payment was made to the LLC Members pursuant to the Tax Receivable Agreement during the year ended December 31, 2024. A payment of $35,697 was made to the LLC Members pursuant to the Tax Receivable Agreement during the year ended December 31, 2023.
The amounts payable under the Tax Receivable Agreement will vary depending upon a number of factors, including the amount, character and timing of the taxable income of Rocket Companies in the future. Any such changes in these factors or changes in the Company’s determination of the need for a valuation allowance related to the tax benefits acquired under the Tax Receivable Agreement could adjust the Tax receivable agreement liability recognized and recorded within earnings in future periods.
In addition, the Tax Receivable Agreement provides that upon certain changes of control of the Company or a material breach of our obligations under the Tax Receivable Agreement, the Company is required to make a payment to the LLC Members in an amount equal to the present value of future payments (calculated using a discount rate equal to the lesser of 6.50% or the applicable base rate plus 100 basis points, which may differ from our, or a potential acquirer’s, then-current cost of capital) under the Tax Receivable Agreement, which payment would be based on certain assumptions (described in assumptions (i) through (v) in the following paragraph), including those relating to our future taxable income. In these situations, our obligations under the Tax Receivable Agreement could have a substantial negative impact on our, or a potential acquirer’s, liquidity and could have the effect of delaying, deferring, modifying or preventing certain mergers, asset sales, other forms of business combinations or other changes of control. These provisions of the Tax Receivable Agreement may result in situations where the LLC Members have interests that differ from or are in addition to those of our other stockholders. In addition, the Company could be required to make payments under the Tax Receivable Agreement that are substantial, significantly in advance of any potential actual realization of such further tax benefits, and in excess of our, or a potential acquirer’s, actual cash savings in income tax.
Furthermore, Rocket Companies may elect to terminate the Tax Receivable Agreement early by making an immediate payment equal to the present value of the anticipated future cash tax savings (calculated using a discount rate equal to the lesser of 6.50% or the applicable base rate plus 100 basis points.) In determining such anticipated future cash tax savings, the Tax Receivable Agreement includes several assumptions, including that (i) any Holdings Units that have not been exchanged are deemed exchanged for the market value of the shares of Class A common stock at the time of termination, (ii) Rocket Companies will have sufficient taxable income in each future taxable year to fully realize all potential tax savings, (iii) Rocket Companies will have sufficient taxable income to fully utilize any remaining net operating losses subject to the Tax Receivable Agreement in the taxable year of the election or future taxable years, (iv) the tax rates for future years will be those specified in the law as in effect at the time of termination and (v) certain non-amortizable assets are deemed disposed of within specified time periods.
As a result of the change in control provisions and the early termination right, Rocket Companies could be required to make payments under the Tax Receivable Agreement that are greater than or less than the specified percentage of the actual cash tax savings that Rocket Companies realizes in respect of the tax attributes subject to the Tax Receivable Agreement (although any such overpayment would be taken into account in calculating future payments, if any, under the Tax Receivable Agreement) or that are prior to the actual realization, if any, of such future tax benefits. Also, the obligations of Rocket Companies would be automatically accelerated and be immediately due and payable in the event that Rocket Companies breaches any of its material obligations under the agreement and in certain events of bankruptcy or liquidation. In these situations, our obligations under the Tax Receivable Agreement could have a substantial negative impact on our liquidity.
Tax Distributions
The holders of Holdings’ Units, including Rocket Companies Inc., incur U.S. federal, state and local income taxes on their share of any taxable income of Holdings. The Holdings Operating Agreement provides for pro rata cash distributions (“tax distributions”) to the holders of the Holdings Units in an amount generally calculated to provide each holder of Holdings Units with sufficient cash to cover its tax liability in respect of the Holdings Units. In general, these tax distributions are computed based on Holdings’ estimated taxable income, multiplied by an assumed tax rate as set forth in the Holdings Operating Agreement.
For the years ended December 31, 2024 and 2023, Holdings paid tax distributions totaling $14,222 and $1,504, respectively, to holders of Holdings Units other than Rocket Companies.
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Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2024 | Mar 3, 2025 | Showing above |
| 2020 | Mar 24, 2021 | |
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.