Note 13 - Income Taxes
The following table reconciles our GAAP net income (loss) to estimated REIT taxable income for the years ended December 31, 2025, December 31, 2024 and December 31, 2023.
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| | | For the Years Ended |
| | | December 31, 2025 | | December 31, 2024 | | December 31, 2023 |
| GAAP net income (loss) | | $ | 322,687 | | | $ | (14,394) | | | $ | (67,923) | |
| Book to tax differences: | | | | | | |
| TRS (income) loss | | (49) | | | (51) | | | 81 | |
| Premium amortization expense | | | | — | | | (1) | |
| Agency Securities, trading | | (514,836) | | | 348,646 | | | 52,665 | |
| U.S. Treasury Securities | | 9,990 | | | (37,602) | | | 43,093 | |
| Changes in interest rate contracts | | 475,165 | | | (93,236) | | | 167,963 | |
| Loss on Security sales | | — | | | — | | | 7,471 | |
| | | | | | |
| Amortization of deferred hedging costs | | (71,930) | | | (82,209) | | | (103,669) | |
| Amortization of deferred Treasury Future gains | | 8,392 | | | 16,753 | | | 23,161 | |
| Other | | 313 | | | 2,134 | | | 1,876 | |
| Estimated REIT taxable income | | $ | 229,732 | | | $ | 140,041 | | | $ | 124,717 | |
Interest rate contracts and futures contracts are treated as hedging transactions for U.S. federal income tax purposes. Unrealized gains and losses on open interest rate contracts are not included in the determination of REIT taxable income. Realized gains and losses on interest rate contracts and futures contracts terminated before their maturity are deferred and amortized over the remainder of the original term of the contract for REIT taxable income. At December 31, 2025 and December 31, 2024, we had approximately $(313,284) and $(189,450) of net deductible expense relating to previously terminated interest rate swap and treasury futures/shorts contracts amortizing through the years 2040 and 2034, respectively. At December 31, 2025, we had $257,341 of net operating loss carryforwards available for use indefinitely.
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| Net capital losses realized | | Amount | | Available to offset capital gains through |
| | | | |
| | | | |
| 2022 | | (732,477) | | | 2027 |
| 2023 | | (472,002) | | | 2028 |
| 2024 | | (46,823) | | | 2029 |
| 2025 | | (4,137) | | | 2030 |
The Company's subsidiary, ARMOUR TRS, Inc. has made an election as a taxable REIT subsidiary (“TRS”). As such, the TRS is taxable as a domestic C corporation and subject to federal, state, and local income taxes based upon its taxable income.
The aggregate tax basis of our assets and liabilities was greater than our total Stockholders’ Equity at December 31, 2025, by approximately $106,444, or approximately $0.95 per common share (based on the 111,915 common shares then outstanding). State and federal tax returns for the years 2022 and later remain open and are subject to possible examination.
We are required and intend to timely distribute substantially all of our REIT taxable income in order to maintain our REIT status under the Code. Total dividend payments to stockholders for the years ended December 31, 2025, December 31, 2024 and December 31, 2023 were $283,512, $162,972 and $228,206, respectively.
Our estimated REIT taxable income and dividend requirements to maintain our REIT status are determined on an annual basis. Dividends paid in excess of current tax earnings and profits for the year will generally not be taxable to common stockholders. The portion of the dividends on our common stock which represented non-taxable return of capital was 19.6% in 2025, 14.8% in 2024 and 47.5% in 2023.
Our management is responsible for determining whether tax positions taken by us are more likely than not to be sustained on their merits. We have no material unrecognized tax benefits or material uncertain tax positions for all periods presented.