Bank of America has changed its accounting methods for tax-related equity investments in affordable housing, wind, and solar renewable energy to better align financial reporting with the economic impact of these investments. The primary effect is a reclassification between income statement line items, with an insignificant impact on annual net income.
Key Details
- Accounting Method Change: The company is switching from the equity method to the proportional amortization method (PAM) for affordable housing and wind energy investments. For solar investments, investment tax credits (ITCs) will be recognized over the productive life of the asset.
- Financial Impact: The change resulted in a retrospective cumulative decrease of $1.7 billion to retained earnings as of September 30, 2025, due to a timing difference in expense recognition that is expected to reverse over the life of the investments.
- Capital & Tax Rate Impact: As of September 30, 2025, the change would have resulted in an estimated $2.1 billion decrease in Common Equity Tier 1 (CET1) capital, a 13 basis point reduction to the CET1 ratio, and an increase in the Q3 2025 effective tax rate to an estimated 20.0% from 10.4%.