Deferred taxes in an acquisition
The DTL on write-ups, its unwind, and the step-up.
By Surojit Chakraverti, founder of L3VLUP and an investor running a long-short healthcare and technology equities strategy.
On this subject: deferred taxes in an acquisition.Updated 2 October 2026
Part of m&a and private equity models, with the models, labs and guides around it.
What it does
In a stock deal the buyer inherits the target’s tax basis, so the write-ups to fair value will never be deductible: a deferred tax liability is booked against them at the tax rate, and it unwinds through the deferred tax line as the write-ups amortise, leaving the liability on any indefinite-lived intangible in place. In an asset deal, or a share deal treated as one by election, the basis steps up to the price: no liability arises at close, goodwill and intangibles are deducted over the tax life, and the deductions save cash. Reported earnings are charged the same in both; cash taxes are not.
Where it lives
The same schedule in each model that carries it, with the rows to open. Open a model in the browser, go to the sheet, and click the lines.
- Assumptions, rows 44–47: Tax rate, Tax amortisation period, asset deal, Discount rate for tax savings, Seller’s incremental tax on an asset sale
- Allocation, row 6: Tax basis step-up
- Allocation, row 16: Less deferred tax liability on write-ups
- Allocation, rows 23–25: Extra goodwill in a stock deal, Present value of asset deal tax savings, Net value of step-up after seller’s tax
- Deferred tax, rows 6–9: Deferred tax liability, opening, Unwind, Deferred tax liability, closing, Cash tax saved by the write-ups
- Deferred tax, rows 12–20: Inventory step-up deduction, PP&E write-up deduction, Intangibles and goodwill deduction, Tax deductions from the step-up…
What a reviewer looks for
- Booking a liability on the write-ups in an asset deal.
- Unwinding the liability on an indefinite-lived trade name.
- Treating the structure as changing reported earnings rather than cash taxes.
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Vocabulary: Deferred Tax (DTA and DTL), Step-Up in Tax Basis, Goodwill.