Braemar Hotels & Resorts Inc.BHR
Braemar Hotels & Resorts Inc. Income Taxes Disclosure
Income Taxes
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For U.S. federal income tax purposes, we elected to be taxed as a REIT under the Code. To qualify as a REIT, we must meet certain organizational and operational stipulations, including a requirement that we distribute at least 90% of our REIT taxable income, excluding net capital gains, to our stockholders. We currently intend to adhere to these requirements and maintain our REIT status. If we fail to qualify as a REIT in any taxable year, we will be subject to U.S. federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not qualify as a REIT for four subsequent taxable years. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes as well as to federal income and excise taxes on our undistributed taxable income.
At December 31, 2025, 12 of our hotel properties were leased to TRS lessees and The Ritz-Carlton St. Thomas was owned by our USVI TRS. The TRS entities recognized net book income (loss) before income taxes of $2.8 million, $9.6 million and $17.9 million for the years ended December 31, 2025, 2024 and 2023, respectively.
We have prospectively adopted the disclosure requirements as required after the adoption of ASU 2023-09. The following table reconciles the income tax expense of the Company at applicable statutory rates to the actual income tax expense recorded (in thousands):
| Year Ended December 31, 2025 | |||||||||||
$ | % | ||||||||||
Income tax (expense) benefit at federal statutory rate of 21% | $ | 5,551 | 21.00 | % | |||||||
State and local income tax, net of federal (national) income tax effect (1) | (287) | (1.09) | % | ||||||||
Foreign tax effects: | |||||||||||
Benefit of USVI Economic Development Commission credit | 398 | 1.51 | % | ||||||||
USVI - Nontaxable or nondeductible items | 111 | 0.42 | % | ||||||||
Benefit of Puerto Rico tax incentives | 818 | 3.09 | % | ||||||||
Puerto Rico - nontaxable or nondeductible items | (167) | (0.63) | % | ||||||||
Changes in valuation allowance | (742) | (2.81) | % | ||||||||
| Nontaxable or nondeductible items | (275) | (1.04) | % | ||||||||
| Redeemable noncontrolling interests in operating partnership | (616) | (2.33) | % | ||||||||
| Tax impact of REIT election | (6,793) | (25.70) | % | ||||||||
| Other | 23 | 0.09 | % | ||||||||
Effective tax rate | $ | (1,979) | (7.49) | % | |||||||
(1) State taxes in Texas, Philadelphia and California make up the majority (greater than 50% percent) of the tax effect in this category.
As previously disclosed for the years ended December 31, 2024 and 2023, prior to the adoption of ASU 2023-09, the following table reconciles the income tax expense of the TRS entities at applicable statutory rates to the actual income tax expense recorded (in thousands):
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
Income tax (expense) benefit of the TRS entities at federal statutory income tax rate of 21% | $ | (2,040) | $ | (5,180) | |||||||
| State income tax (expense) benefit, net of U.S. federal income tax benefit | (81) | (258) | |||||||||
| State and local income tax (expense) benefit on pass-through entity subsidiaries | (27) | (20) | |||||||||
| Gross receipts and margin taxes | (88) | (52) | |||||||||
| Benefit of USVI Economic Development Commission credit | 1,559 | 1,511 | |||||||||
| Benefits of Puerto Rico tax incentives | 950 | 2,064 | |||||||||
Effect of permanent differences | (412) | (229) | |||||||||
| Other | 39 | (46) | |||||||||
| Valuation allowance | (742) | (479) | |||||||||
| Total income tax (expense) benefit | $ | (842) | $ | (2,689) | |||||||
The components of income tax expense are as follows (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | (137) | $ | (387) | $ | (467) | |||||||||||
| State | (305) | 68 | (69) | ||||||||||||||
| Foreign | (478) | (619) | (824) | ||||||||||||||
| Total current income tax (expense) benefit | (920) | (938) | (1,360) | ||||||||||||||
| Deferred: | |||||||||||||||||
| Federal | 10 | 1 | (14) | ||||||||||||||
| State | 3 | — | — | ||||||||||||||
| Foreign | (1,072) | 95 | (1,315) | ||||||||||||||
| Total deferred income tax (expense) benefit | (1,059) | 96 | (1,329) | ||||||||||||||
| Total income tax (expense) benefit | $ | (1,979) | $ | (842) | $ | (2,689) | |||||||||||
We have prospectively adopted the disclosure requirements as required after the adoption of ASU 2023-09. The following table presents the disaggregated cash paid for income taxes, net of refunds (in thousands):
Year Ended December 31, 2025 | |||||
Federal | $ | 230 | |||
State | (176) | ||||
Foreign | 562 | ||||
Total cash paid (refunded) during the period for income taxes (1) | $ | 616 | |||
___________________
(1) Individual jurisdictions equaling 5% or more of the total income taxes paid (net of refunds) for the year ended December 31, 2025 include Puerto Rico at $463,000, federal at $230,000, USVI at $119,000, Philadelphia at $76,000, Florida at $(247,000) and Arizona at $(61,000).
The following table presents the U.S. and foreign earnings (losses) from continuing operations (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
U.S. | $ | (39,318) | $ | 6,549 | $ | (51,878) | |||||||||||
Foreign | 12,887 | 14,056 | 23,939 | ||||||||||||||
Total | $ | (26,431) | $ | 20,605 | $ | (27,939) | |||||||||||
For the years ended December 31, 2025, 2024 and 2023, income tax expense included interest and penalties paid to/(received from) taxing authorities of $17,000, $4,000 and $(11,000), respectively. At December 31, 2025 and 2024, we determined that there were no amounts to accrue for interest and penalties due to taxing authorities.
At December 31, 2025 and 2024, our deferred tax asset (liability) and related valuation allowance consisted of the following (in thousands):
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
Deferred tax assets: | |||||||||||
| Tax intangibles basis greater than book basis | $ | 743 | $ | 722 | |||||||
| Allowance for doubtful accounts | 18 | 99 | |||||||||
| Unearned income | 4,159 | 3,068 | |||||||||
| Federal and state net operating losses | 17,978 | 16,435 | |||||||||
| Capital loss carryforward | — | 331 | |||||||||
| Accrued expenses | 886 | 775 | |||||||||
| Other | 9 | 12 | |||||||||
Total deferred tax asset | 23,793 | 21,442 | |||||||||
| Valuation allowance | (18,351) | (16,496) | |||||||||
Net deferred tax asset | $ | 5,442 | $ | 4,946 | |||||||
Deferred tax liabilities: | |||||||||||
Deferred income | $ | (11) | $ | (11) | |||||||
Tax property basis greater/(less) than book basis | (7,710) | (6,160) | |||||||||
| Prepaid expenses | (5) | — | |||||||||
Total deferred tax liability | (7,726) | (6,171) | |||||||||
| Net deferred tax asset (liability) | $ | (2,284) | $ | (1,225) | |||||||
At December 31, 2025 and 2024, we have reserved certain deferred tax assets of our TRS entities and recorded a valuation allowance of $18.4 million and $16.5 million, respectively. Primarily as a result of the limitation imposed by the Code on the utilization of net operating losses of acquired subsidiaries, we believe it is more likely than not that a portion of our deferred tax assets will not be realized, and therefore, have provided a valuation allowance to reserve against the balances.
At December 31, 2025, we had TRS net operating loss carryforwards for U.S. federal income tax purposes of $64.9 million, of which $43.4 million is subject to expiration and will begin to expire in 2026. The remainder was generated after December 2017 and is not subject to expiration under the Tax Cuts and Jobs Act. $43.4 million of net operating loss carryforwards are attributable to acquired subsidiaries and are subject to substantial limitation on their use. At December 31, 2025, we had state net operating loss carryforwards of $137.3 million, which begin to expire in 2033. The Company also has indefinite-lived state net operating losses (“NOLs”). At December 31, 2025, Braemar Hotels & Resorts Inc., our REIT, had net operating loss carryforwards for U.S. federal income tax purposes of $109.7 million based on the latest filed tax return. Of this amount, $2.2 million is subject to expiration in 2033. The remainder is not subject to expiration under the Tax Cuts and Jobs Act. We do not recognize deferred tax assets and a valuation allowance for the REIT since the REIT distributes its taxable income as dividends to stockholders, and in turn, the stockholders incur income taxes on those dividends.
The following table summarizes the changes in the valuation allowance (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Balance at beginning of year | $ | 16,496 | $ | 16,169 | $ | 18,627 | |||||||||||
| Additions | 1,855 | 327 | — | ||||||||||||||
| Deductions | — | — | (2,458) | ||||||||||||||
| Balance at end of year | $ | 18,351 | $ | 16,496 | $ | 16,169 | |||||||||||
The USVI TRS operates under a tax holiday in the U.S. Virgin Islands, which is effective through December 31, 2028, and may be extended if certain additional requirements are satisfied. The tax holiday is conditional upon our meeting certain employment and investment thresholds. The impact of this tax holiday decreased current foreign taxes by $2.0 million and $2.7 million for the years ended December 31, 2024 and 2023, respectively. There was no current foreign tax for the U.S. Virgin Islands for the year ended December 31, 2025. The benefit of the tax holiday on net income (loss) per share was approximately, $0.00, $0.03 and $0.04 for the years ended December 31, 2025, 2024 and 2023, respectively.
In 2022, we acquired The Ritz-Carlton Reserve Dorado Beach in Dorado, Puerto Rico. Our taxable entities in Puerto Rico operate under a tax holiday which is effective through April 2, 2028. The tax holiday is conditional upon meeting certain employment and investment thresholds. The impact of this tax holiday decreased current foreign taxes by $4.4 million, $1.7 million and $4.0 million for the years ended December 31, 2025, 2024 and 2023, respectively. The benefit of this tax holiday on net income (loss) per share was approximately $0.07, $0.02 and $0.06 for the years ended December 31, 2025, 2024 and 2023, respectively.
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Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 12, 2026 | Showing above |
| 2024 | Mar 12, 2025 | |
| 2023 | Mar 14, 2024 | |
| 2022 | Mar 10, 2023 | |
| 2021 | Mar 10, 2022 | |
| 2020 | Mar 5, 2021 | |
| 2019 | Mar 13, 2020 | |
| 2018 | Mar 8, 2019 | |
| 2017 | Mar 14, 2018 | |
| 2016 | Feb 28, 2017 | |
| 2015 | Mar 15, 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.