6. Income Taxes
We have maintained and intend to maintain our election as a REIT under the Internal Revenue Code of 1986, as amended. In order for us to continue to qualify as a REIT we must meet a number of organizational and operational requirements, including a requirement to distribute annual dividends to our shareholders equal to a minimum of 90% of our adjusted taxable income. As a REIT, we generally will not be subject to federal income tax on our taxable income at the REIT level to the extent such income is distributed to our shareholders annually. If our taxable income exceeds our dividends in a tax year, REIT tax rules allow us to designate dividends from the subsequent tax year in order to avoid current taxation on undistributed income. If we fail to qualify as a REIT in any taxable year, we may be subject to federal and state income taxes for such year. In addition, we may not be able to requalify as a REIT for the four subsequent taxable years and may be subject to federal and state income taxes in those years as well. Historically, we have incurred only state and local income, franchise, and excise taxes. Taxable income from non-REIT activities managed through taxable REIT corporate subsidiaries, which are not material, is subject to applicable federal, state, and local income taxes. Our operating partnerships are flow-through entities and are not subject to federal income taxes at the entity level.
For the years ended December 31, 2025, 2024, and 2023 we recorded income, franchise, and excise taxes as income tax expense of approximately $4.0 million, $2.9 million, and $3.7 million, respectively. Income taxes for these tax years were comprised mainly of state income and franchise taxes, and federal taxes related to our taxable REIT corporate subsidiaries. We have no significant temporary or permanent differences or tax credits associated with our taxable REIT corporate subsidiaries.
For income tax purposes, distributions to common shareholders are characterized as ordinary income, capital gains, or return of capital. A summary of the income tax characterization of our distributions paid per common share for the years ended December 31, 2025, 2024, and 2023 is set forth in the following table:
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended December 31, |
| | | 2025 | | 2024 | | 2023 |
Common Share Distributions (1) | | | | | | |
| Ordinary income | | $ | 3.76 | | | $ | 3.29 | | | $ | 2.54 | |
| Long-term capital gain | | 0.36 | | | 0.53 | | | 1.90 | |
| Return of capital | | — | | | — | | | — | |
| Unrecaptured Sec. 1250 gain | | 0.08 | | | 0.30 | | | 0.50 | |
| Total | | $ | 4.20 | | | $ | 4.12 | | | $ | 4.94 | |
| | | | | | |
(1) The $1.05 per share distribution paid on January 16, 2026 was considered a 2025 distribution for federal income tax purposes and was subject to taxation based on our 2025 earnings and profits. The $1.03 per share distribution paid on January 17, 2025 was considered a 2024 distribution for federal income tax purposes and was subject to taxation based on our 2024 earnings and profits. The $1.00 per share distribution per share paid on January 17, 2024 was considered a 2023 distribution for federal income tax purposes and was subject to taxation based on our 2023 earnings.
The carrying value of net assets reported in our consolidated financial statements at December 31, 2025 exceeded the tax basis by approximately $1.3 billion.
The income tax returns of Camden Property Trust and its subsidiaries are subject to examination by federal, state, and local tax jurisdictions for years 2022 through 2024. Tax attributes generated in 2021 and prior years are also subject to challenge in any examination of those tax years.