ADAMAS TRUST, INC.ADAM
ADAMAS TRUST, INC. Income Taxes Disclosure
21. Income Taxes
For the years ended December 31, 2025, 2024 and 2023, the Company qualified to be taxed as a REIT under the Internal Revenue Code for U.S. federal income tax purposes. As long as the Company qualifies as a REIT, the Company generally will not be subject to U.S. federal income taxes on its taxable income to the extent it annually distributes at least 100% of its taxable income to stockholders and does not engage in prohibited transactions. Certain activities the Company performs may produce income that will not be qualifying income for REIT purposes. The Company has designated its TRSs to engage in these activities. The tables below reflect the taxes accrued at the TRS level and the tax attributes included in the consolidated financial statements.
The income tax provision for the years ended December 31, 2025, 2024 and 2023, respectively, is comprised of the following components (dollar amounts in thousands):
| For the Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current income tax provision | |||||||||||||||||
| Federal | $ | 6 | $ | 35 | $ | 23 | |||||||||||
| State | 236 | 86 | 273 | ||||||||||||||
| Total current income tax provision | 242 | 121 | 296 | ||||||||||||||
Deferred income tax (benefit) provision | |||||||||||||||||
| Federal | (86) | 866 | (136) | ||||||||||||||
| State | (11) | 49 | (85) | ||||||||||||||
Total deferred income tax (benefit) provision | (97) | 915 | (221) | ||||||||||||||
| Total income tax provision | $ | 145 | $ | 1,036 | $ | 75 | |||||||||||
The Company’s effective income tax rate differs from the statutory U.S. federal rate as a result of state and local taxes, non-taxable REIT income, changes in valuation allowance and other differences. A reconciliation of the statutory income tax provision to the effective income tax provision for the years ended December 31, 2025, 2024 and 2023, respectively, are as follows (dollar amounts in thousands).
| For the Years Ended December 31, | |||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||||||||||||||||||||
| $ | 31,331 | 21.0 | % | $ | (12,808) | 21.0 | % | $ | (10,204) | 21.0 | % | ||||||||||||||||||||||||
Non-taxable REIT (income) loss | (31,998) | (21.4) | 13,007 | (21.3) | 6,901 | (14.2) | |||||||||||||||||||||||||||||
State and local tax provision (1) | 217 | 0.1 | 91 | (0.1) | 296 | (0.6) | |||||||||||||||||||||||||||||
| Other | 825 | 0.6 | (462) | 0.8 | (3,366) | 6.9 | |||||||||||||||||||||||||||||
Changes in valuation allowance | (230) | (0.2) | 1,208 | (2.0) | 6,448 | (13.3) | |||||||||||||||||||||||||||||
| Total provision | $ | 145 | 0.1 | % | $ | 1,036 | (1.6) | % | $ | 75 | (0.2) | % | |||||||||||||||||||||||
(1)State taxes in Texas and South Carolina for the year ended December 31, 2025 and in Texas and New York for the years ended December 31, 2024 and 2023 made up the majority (greater than 50%) of the tax effect in this category.
The following table details the amounts of income taxes paid (net of refunds received) to each jurisdiction for the years ended December 31, 2025, 2024 and 2023, respectively (dollar amounts in thousands):
| For the Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Federal | $ | 296 | $ | 38 | $ | 74 | |||||||||||
| States | (78) | (70) | 151 | ||||||||||||||
| Cash paid (refunds received) for income taxes | $ | 218 | $ | (32) | $ | 225 | |||||||||||
Deferred Tax Assets and Liabilities
The major sources of temporary differences included in the deferred tax assets (liabilities) and their deferred tax effect as of December 31, 2025 and 2024, respectively, are as follows (dollar amounts in thousands):
| December 31, 2025 | December 31, 2024 | ||||||||||
| Deferred tax assets | |||||||||||
| Net operating loss carryforward | $ | 11,252 | $ | 9,671 | |||||||
| Capital loss carryover | 21,676 | 16,259 | |||||||||
GAAP/Tax differences | |||||||||||
Residential loans | 3,651 | 4,101 | |||||||||
Interest expense limitation carryforward | 3,998 | 1,218 | |||||||||
Investment securities | — | 5,997 | |||||||||
Other | 46 | 30 | |||||||||
Total GAAP/Tax differences | 7,695 | 11,346 | |||||||||
Deferred tax assets | 40,623 | 37,276 | |||||||||
Less: Valuation allowance | (26,182) | (26,412) | |||||||||
Net deferred tax assets (1) | 14,441 | 10,864 | |||||||||
| Deferred tax liabilities | |||||||||||
GAAP/Tax differences | |||||||||||
Investment securities available for sale | 369 | — | |||||||||
Goodwill and intangible assets | 7,701 | 1,575 | |||||||||
Mortgage servicing rights | 2,981 | 2,578 | |||||||||
Derivatives | 1,710 | 5,129 | |||||||||
Total GAAP/Tax differences | 12,761 | 9,282 | |||||||||
Deferred tax liabilities (2) | 12,761 | 9,282 | |||||||||
Total net deferred tax asset | $ | 1,680 | $ | 1,582 | |||||||
(1)Included in other assets in the accompanying consolidated balance sheets.
(2)Included in other liabilities in the accompanying consolidated balance sheets.
As of December 31, 2025, the Company, through wholly-owned TRSs, had incurred net operating losses in the aggregate amount of approximately $47.3 million. The Company’s carryforward net operating losses can be carried forward indefinitely until they are offset by future taxable income. Additionally, as of December 31, 2025, the Company, through its wholly-owned TRSs, had also incurred approximately $91.2 million in capital losses. The Company’s carryover capital losses will expire between 2026 and 2030 if they are not offset by future capital gains.
As of December 31, 2025, the Company has recorded a valuation allowance against certain deferred tax assets as management does not believe that it is more likely than not that these deferred tax assets will be realized. The valuation allowance was primarily related to U.S. federal deferred tax assets resulting from net operating loss carryforward and capital loss carryover. The change in the valuation for the current year is a decrease of approximately $0.2 million. We will continue to monitor positive and negative evidence related to the utilization of the remaining deferred tax assets for which a valuation allowance continues to be provided. The Company's deferred tax assets without a valuation allowance are more likely than not to be realized given the expectation of future taxable income.
The Company files income tax returns with the U.S. federal government and various state and local jurisdictions. The Company’s federal, state and city income tax returns are subject to examination by the Internal Revenue Service and related tax authorities generally for three years after they were filed. The Company has assessed its tax positions for all open years and concluded that there are no material uncertainties to be recognized.
Based on the Company’s evaluation, the Company has concluded that there are no significant uncertain tax positions requiring recognition in the Company’s financial statements. To the extent that the Company incurs interest and accrued penalties in connection with its tax obligations, including expenses related to the Company’s evaluation of unrecognized tax positions, such amounts will be included in income tax expense. During the years ended December 31, 2025 and 2024, the Company recognized interest and penalties in the amount of approximately $3.1 thousand and $35.5 thousand, respectively. The Company did not incur interest and penalties for the year ended December 31, 2023.
Recent Tax Law Changes
On July 4, 2025, the legislation known as the One Big Beautiful Bill Act (the “OBBBA”) was signed into law. The OBBBA made significant changes to the U.S. federal income tax law that impact REITs and their investors. Specifically, the OBBBA increases the REIT asset test limitation on the value of TRS securities a REIT may hold from 20% to 25% for taxable years beginning after December 31, 2025. As a result, for taxable years beginning after December 31, 2025, the aggregate value of all securities of TRSs held by a REIT may not exceed 25% of the value of its total assets. The OBBBA also makes permanent the 20% deduction for “qualified REIT dividends” (i.e., REIT dividends other than capital gain dividends and portions of REIT dividends designated as qualified dividend income) for individuals, trusts, and estates that was set to sunset for taxable years beginning after December 31, 2025. In addition, for taxable years beginning after December 31, 2024, the OBBBA restored the exclusion of deductions for depreciation, depletion and amortization in the calculation of a taxpayer’s “adjusted taxable income” for purposes of calculating the limitation on the taxpayer’s net interest expense deduction, which was previously in effect for taxable years beginning before January 1, 2022.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 20, 2026 | Showing above |
| 2024 | Feb 21, 2025 | |
| 2023 | Feb 23, 2024 | |
| 2022 | Feb 24, 2023 | |
| 2021 | Feb 25, 2022 | |
| 2020 | Feb 26, 2021 | |
| 2019 | Feb 28, 2020 | |
| 2018 | Feb 25, 2019 | |
| 2017 | Feb 27, 2018 | |
| 2016 | Feb 28, 2017 | |
| 2015 | Feb 25, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.