Armour Residential REIT, Inc.ARR

Armour Residential REIT, Inc. Income Taxes Disclosure

10-KFiled Feb 18, 20263 min read
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.
 For the Years Ended
 December 31, 2025December 31, 2024December 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 Securities9,990 (37,602)43,093 
Changes in interest rate contracts475,165 (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 gains8,392 16,753 23,161 
Other313 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.
Net capital losses realizedAmountAvailable 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.
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Historical Timeline

Fiscal YearFiled
2025Feb 18, 2026Showing above
2024Feb 12, 2025
2023Mar 15, 2024
2022Feb 15, 2023
2021Feb 16, 2022
2020Feb 17, 2021
2019Feb 19, 2020
2018Feb 14, 2019
2017Feb 14, 2018
2016Feb 15, 2017
2015Feb 18, 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.

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