Berkshire Hathaway’s Effective Tax Rate: Why It’s 18.4%, Not 21%

Berkshire Hathaway’s effective tax rate came in at 18.4% for fiscal year 2025, meaning the company paid $15.2 billion in income taxes on $82.5 billion of pre-tax earnings.¹ That sits below the 21% federal statutory rate for one main reason: energy production tax credits from Berkshire Hathaway Energy’s wind portfolio, joined by the dividends received deduction and a few smaller items, outweigh the drag from state and local taxes.

The Three-Year Trend

Berkshire’s effective rate has drifted downward across the last three years:¹

2025: 18.4% ($15.2 billion on $82.5 billion)
2024: 18.9% ($20.8 billion on $110.4 billion)
2023: 19.2% ($23.0 billion on $120.2 billion)

The drop in pre-tax earnings from 2024 to 2025 mostly reflects smaller unrealized investment gains flowing through the income statement, not a weaker operating year. Because unrealized gains are taxed at the full 21% while credits pull the rate down, the mix of earnings drives most of the year-to-year movement. In a year with modest investment gains, the tax-reducing items carry more weight in the blend, and the effective rate falls.

How the Rate Gets From 21% to 18.4%

Every public company reconciles its effective rate against the federal statutory rate in its financial statements, and Berkshire’s 2025 reconciliation reads like a map of its business structure. The biggest items reducing the rate below 21%:¹

Energy production tax credits: 2.5 percentage points ($2.1 billion)
Other federal tax credits: 0.7 points ($597 million)
Dividends received deduction: 0.6 points ($460 million)

Working the other way, state and local income taxes added 0.9 percentage points. Berkshire operates in dozens of states, with five accounting for the majority of that burden. Net out the pieces and a hypothetical $17.3 billion federal tax bill (21% of $82.5 billion) becomes the actual $15.2 billion paid.

Unrealized Investment Gains and Tax Volatility

The single biggest source of swings in Berkshire’s effective rate is the accounting treatment of its equity portfolio. Since 2018, accounting rules have required companies to run unrealized gains and losses on stocks through the income statement, even when no shares are sold.² For most companies this is a footnote. For Berkshire, which holds hundreds of billions in publicly traded stocks, it dominates the earnings picture.

In 2025, Berkshire reported $39.1 billion in investment gains, which carried an effective tax rate of 21.3% on their own. After-tax, those gains added roughly $30.7 billion to net earnings.¹ The tax is mostly deferred rather than paid in cash, because the stocks haven’t been sold. Berkshire records a deferred tax liability that has grown to roughly $87 billion across the company.

The math turns counterintuitive from there. When markets surge, unrealized gains inflate pre-tax income at a flat 21% with no offsetting credits, pulling the blended rate closer to the statutory rate. When markets are flat or down, the credit-driven items represent a larger share of the total, and the effective rate dips. Berkshire’s management has repeatedly warned shareholders not to read too much into quarterly or annual earnings swings driven by mark-to-market accounting.

Energy Production Tax Credits

Berkshire Hathaway Energy is one of the largest renewable operators in the country, with wind farm portfolios across multiple states. The production credits from those installations are the single largest factor keeping Berkshire’s consolidated rate below 21%, worth $2.1 billion in 2025 alone.¹

At the subsidiary level, the scale is striking. Berkshire Hathaway Energy reported negative effective tax rates for five consecutive years from 2018 through 2022, meaning credits exceeded the subsidiary’s federal tax liability outright. The energy unit’s rate hit -52% in 2022 on $3.4 billion in wind credits. At the consolidated level those credits get blended with the taxable income of BNSF Railway, GEICO, and dozens of other subsidiaries, so the parent’s rate never turns negative, but the credits remain the most powerful rate-reducing tool in the portfolio.

Under current law, the clean electricity production credit pays a base rate of 0.3 cents per kilowatt-hour at a qualifying facility, with 1.5 cents per kilowatt-hour available to facilities that meet prevailing wage and apprenticeship requirements.³ Given the volume of wind generation Berkshire produces, even fractions of a cent translate into billions in credits over time.

The Dividends Received Deduction

Berkshire collects substantial dividends from the domestic companies in its equity portfolio. Federal law lets corporations deduct a percentage of dividends received from other taxable domestic corporations, preventing the same earnings from being taxed multiple times as they pass between companies.⁴ The percentage depends on ownership: 50% for stakes under 20%, 65% for stakes of 20% or more, and 100% for certain qualifying dividends within affiliated groups.

For Berkshire, this deduction reduced the 2025 effective rate by 0.6 percentage points, saving $460 million.¹ The amount fluctuates with dividend income and the ownership thresholds of individual holdings. When Berkshire held a roughly 5.9% stake in Apple, dividends from Apple qualified for the 50% deduction. Holdings at 20% or more get the 65% treatment.

Tax-Exempt Municipal Bond Interest

Berkshire has historically maintained a sizable portfolio of municipal bonds, which pay interest excluded from gross income under federal law.⁵ The interest shows up in GAAP earnings reported to shareholders but never appears on the tax return, creating what accountants call a permanent difference. Every dollar of tax-exempt interest widens the gap between GAAP income and taxable income and pulls the effective rate down without generating an offsetting deferred liability. The effect is smaller than energy credits or the dividends received deduction, and Berkshire has reduced its municipal bond holdings in recent years.

The 15% Floor Under Very Large Corporations

The Inflation Reduction Act of 2022 introduced a Corporate Alternative Minimum Tax that imposes a 15% floor on the adjusted financial statement income of very large corporations.⁶ It applies to any corporation whose average adjusted financial statement income exceeds $1 billion over a three-year testing period.⁷ Berkshire clears that threshold by a wide margin.

The CAMT compares regular tax liability to 15% of book income (with adjustments). If regular tax falls below the floor, the company owes the difference as a top-up. With Berkshire’s consolidated rate hovering between 18% and 20% in recent years, the CAMT has not been the binding constraint; regular tax already exceeds the minimum. But the CAMT limits how far energy credits and other deductions could theoretically push the rate in a year with unusual circumstances.

One wrinkle: the CAMT uses financial statement income, not taxable income, as its starting point. Unrealized investment gains count toward the CAMT base even though no cash has changed hands. For a company with enormous paper gains in a bull market, the CAMT base can be substantially larger than taxable income.

Net operating losses fit alongside this floor. Federal law lets corporations carry forward NOLs indefinitely, but caps the deduction in any single year at 80% of taxable income.⁸ Losses at one subsidiary (insurance underwriting can swing hard on catastrophe experience) can offset profits at another within the consolidated return, but the 80% cap ensures the taxable base never falls to zero in a profitable year.

Foreign Earnings and the Global Minimum Tax

Berkshire earns a relatively small share of its income outside the United States. In 2025, foreign pre-tax earnings were $5.4 billion against $77.1 billion domestic.¹ Foreign jurisdictions impose their own rates, and foreign taxes paid generate credits against U.S. tax on the same income. Because Berkshire’s foreign footprint is modest relative to its size, international dynamics play a smaller role in the consolidated rate than they do for technology or pharmaceutical companies with large offshore operations.

The OECD’s Pillar Two framework, adopted by more than 145 countries, establishes a 15% global minimum tax on large multinationals. The U.S. Treasury secured an agreement exempting U.S.-headquartered companies from Pillar Two’s top-up mechanisms, keeping those companies subject only to U.S. global minimum tax rules.⁹ Pillar Two therefore imposes no additional tax on Berkshire beyond existing U.S. law, and the agreement preserves the value of the domestic energy credits central to Berkshire’s tax picture.

What the Rate Tells an Investor

Berkshire’s effective tax rate is one of the more misunderstood numbers in its financials. In any given year it can look artificially high or low depending on whether equity markets rose or fell, because unrealized gains dominate pre-tax income and carry a different tax profile than operating earnings. A reader who compares Berkshire’s 18.4% rate against a utility’s 24% without understanding that distortion will draw the wrong conclusion about tax efficiency.

The more useful comparison strips out investment gains and looks at the operating businesses alone. Berkshire’s operating earnings are taxed close to the statutory 21%, offset modestly by energy credits and the dividends received deduction. The energy credits are the structural advantage most worth watching: a recurring cash tax savings that directly benefits shareholders. If tax policy changes reduce or eliminate those credits, Berkshire’s effective rate would move noticeably higher. Warren Buffett has acknowledged this explicitly, noting that Berkshire Hathaway Energy’s renewable investments were driven in significant part by the tax credits that made the economics work.

1
Berkshire Hathaway Inc. 2025 Annual Report
2
U.S. Securities and Exchange Commission. Berkshire Hathaway Inc. – INVESTMENTS
3
Internal Revenue Service. Clean Electricity Production Credit
4
Office of the Law Revision Counsel. 26 U.S. Code 243 – Dividends Received by Corporations
5
Office of the Law Revision Counsel. 26 U.S.C. 103 – Interest on State and Local Bonds
6
Office of the Law Revision Counsel. 26 U.S.C. 55 – Alternative Minimum Tax Imposed
7
Office of the Law Revision Counsel. 26 U.S.C. 59 – Other Definitions and Special Rules
8
Office of the Law Revision Counsel. 26 U.S.C. 172 – Net Operating Loss Deduction
9
U.S. Department of the Treasury. Treasury Secures Agreement to Exempt U.S.-Headquartered Companies