These get created when you write up assets – both tangible and intangible – and when you write down assets in a transaction. An asset write-up creates a deferred tax liability, and an asset write-down creates a deferred tax asset. You write down and write up assets because their book value – what’s on the balance sheet – OFTEN differs substantially from their “fair market value.” An asset write-up creates a deferred tax liability because you’ll have a higher depreciation EXPENSE on the new asset, which MEANS you save on TAXES in the short-term – but eventually you’ll have to pay them back, hence the liability. The opposite applies for an asset write-down and a deferred tax asset.

These get created when you write up assets – both tangible and intangible – and when you write down assets in a transaction. An asset write-up creates a deferred tax liability, and an asset write-down creates a deferred tax asset. You write down and write up assets because their book value – what’s on the balance sheet – often differs substantially from their “fair market value.” An asset write-up creates a deferred tax liability because you’ll have a higher depreciation expense on the new asset, which means you save on taxes in the short-term – but eventually you’ll have to pay them back, hence the liability. The opposite applies for an asset write-down and a deferred tax asset.