Why some companies are reporting loss due to the new US tax law?

Question

From http://uk.businessinsider.com/bank-of-america-fourth-quarter-earnings-q4-2018-1?r=US&IR=T: > Like the other big banks, Bank of America took a hit from the recently > enacted tax law, writing down \\$2.9 billion primarily in deferred tax > assets that declined in value. > > JPMorgan earlier reported a \\$2.4 billion fourth-quarter loss because > of the new tax law, and Citigroup reported a $22 billion loss. My simple minded expectation is that when you lower a tax rate companies should have more money. I tried reading about 'deferred tax assets': https://www.investopedia.com/terms/d/deferredtaxasset.asp Where I found: > The simplest example of a deferred tax asset is the carry-over of > losses. If a business incurs a loss in a financial year, it usually is > entitled to use that loss in order to lower its taxable income in > following years. In that sense, the loss is an asset. So perhaps there is a place for clever accounting around expenses and taxes. But what is the exact mechanism? Why some companies are reporting loss due to the new US tax law?

Answer 1

simple, the value of the tax credit is a function of the tax rate at which future tax benefits were to be realized. so for example if you have some kind of deduction that you are going to use in the future, perhaps associated with depreciation, amortization, Net Operating Losses carried forward, Capital Loss carryforwards etc., the value of those on one's books is a function of the tax rate that you are expected to use them at. So if the deduction in the future was going to be realized at a 50% rate, than each dollar of that deduction is going to be worth 50cents. if the tax rate that you are going to use them at is suddenly changed from 50% to 25% (i.e. tax rates get lowered) than the value of each dollar of deduction you are going to use in the future declines from being worth 50 cents to only being worth 25 cents. make sense amigo?