INCOME TAXES
As a REIT, the Company is generally not subject to U.S. federal income tax with respect to that portion of its income which is distributed annually to its stockholders. However, the Company has elected to treat certain of its corporate subsidiaries, including Extra Space Management, Inc., as a TRS. In general, a TRS may perform additional services for tenants and generally may engage in any real estate or non-real estate related business. A TRS is subject to U.S. federal corporate income tax and may be subject to state and local income taxes. The Company accounts for income taxes in accordance with the provisions of ASC 740, “Income Taxes.” Deferred tax assets and liabilities are determined based on differences between financial reporting and tax bases of assets and liabilities. The Company has elected to use the Tax-Law-Ordering approach to determine when excess tax benefits will be realized.
On July 4, 2025, the One Big Beautiful Bill Act (the “OBBBA”) was enacted into law, which included certain modifications to U.S. tax law, including certain provisions that affect the taxation of REITs and their investors. The OBBBA permanently extended certain provisions that were enacted in the Tax Cuts and Jobs Act of 2017. Such extensions included the permanent extension of the 20% deduction for “qualified REIT dividends” for individuals and other non-corporate taxpayers. The OBBBA also increased the percentage limit under the REIT asset test applicable to taxable REIT subsidiaries (the permissible maximum value of taxable REIT subsidiary securities that a REIT may hold, as a percentage of the value of the REIT’s total assets) from 20% to 25% for taxable years beginning after December 31, 2025. The Company is still evaluating the provisions of the OBBBA and expects the OBBBA to have an impact on its financial position and results of operations by increasing its federal tax expense due to the expiration of solar tax credits in the coming years and changes to Section 162(m) of the Internal Revenue Code related to executive compensation.
The income tax provision for the years ended December 31, 2025, 2024 and 2023, is comprised of the following components: | | | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, 2025 |
| | Federal | | State | | Total |
| Current expense | $ | 38,515 | | | $ | 8,719 | | | $ | 47,234 | |
| Tax credits/true-up | (9,326) | | | — | | | (9,326) | |
| Change in deferred expense | 3,532 | | | 119 | | | 3,651 | |
| Total tax expense | $ | 32,721 | | | $ | 8,838 | | | $ | 41,559 | |
| | | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, 2024 |
| | Federal | | State | | Total |
| Current expense | $ | 37,320 | | | $ | 6,951 | | | $ | 44,271 | |
| Tax credits/true-up | (9,413) | | | — | | | (9,413) | |
| Change in deferred expense/(benefit) | (3,236) | | | 1,856 | | | (1,380) | |
| Total tax expense | $ | 24,671 | | | $ | 8,807 | | | $ | 33,478 | |
| | | | | | | | | | | | | | | | | |
| | For the Year Ended December 31, 2023 |
| | Federal | | State | | Total |
| Current expense | $ | 26,516 | | | $ | 6,035 | | | $ | 32,551 | |
| Tax credits/true-up | (7,742) | | | — | | | (7,742) | |
| Change in deferred expense/(benefit) | (4,151) | | | 901 | | | (3,250) | |
| Total tax expense | $ | 14,623 | | | $ | 6,936 | | | $ | 21,559 | |
A reconciliation of the statutory income tax provisions to the effective income tax provisions for the years indicated is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, | |
| 2025 | 2024 | | 2023 |
| U.S. federal statutory tax rate | $ | 224,010 | | 21.0 | % | | $ | 196,102 | | 21.0 | % | | $ | 183,111 | | 21.0 | % | |
State and local income taxes, net of federal income tax effect (1) | 8,538 | | 0.8 | % | | 8,116 | | 0.9 | % | | 6,451 | | 0.8 | % | |
| Tax credits | | | | | | | | | |
| Solar tax credit | (9,210) | | (0.9) | % | | (9,285) | | (1.0) | % | | (7,554) | | (0.9) | % | |
| Nontaxable or nondeductible items | | | | | | | | | |
| Non-taxable REIT income | (183,656) | | (17.2) | % | | (161,989) | | (17.3) | % | | (161,316) | | (18.5) | % | |
| Other | 1,994 | | 0.2 | % | | 663 | | — | % | | 1,055 | | 0.1 | % | |
| Changes in unrecognized tax benefits | (117) | | — | % | | (129) | | — | % | | (188) | | — | % | |
| | | | | | | | | |
| Effective tax rate | $ | 41,559 | | 3.9 | % | | $ | 33,478 | | 3.6 | % | | $ | 21,559 | | 2.5 | % | |
| | | | | | | | | |
| (1) In 2025, state and local income taxes in Texas, New Hampshire, and Tennessee comprise the majority of this category. In 2024, state and local income taxes in Texas, New Hampshire, Tennessee, and California comprise the majority of this category. In 2023, state and local income taxes in Texas, California, Tennessee, Illinois, and Pennsylvania comprise the majority of this category. | |
|
A disaggregation of categories of income taxes paid by jurisdiction for the years indicated is as follows:
| | | | | | | | | | | | | | | | | |
| For the Year Ended December 31, |
| 2025 | | 2024 | | 2023 |
| Income taxes paid | | | | | |
| U.S. federal | $ | 29,599 | | | $ | 26,595 | | | $ | 17,161 | |
| U.S. state and local | | | | | |
| New Hampshire | * | | 1,708 | | * |
| Texas | 1,845 | | | * | | 1,373 |
| Other | 3,843 | | | 5,469 | | 4,219 |
| Total state and local | 5,688 | | | 7,177 | | | 5,592 | |
| Total income taxes paid (federal and state) | $ | 35,287 | | | $ | 33,772 | | | $ | 22,753 | |
| | | | | |
| *The amount of income taxes paid during the year does not meet the 5% disaggregation threshold |
|
The major sources of temporary differences stated at their deferred tax effects are as follows: | | | | | | | | | | | |
| December 31, 2025 | | December 31, 2024 |
| Deferred tax liabilities: | | | |
| Fixed assets | $ | (43,719) | | | $ | (34,846) | |
| Operating and Finance lease right-of-use assets | (5,351) | | | (6,495) | |
| Other | (11,091) | | | (13,903) | |
| State deferred taxes | (7,540) | | | (7,304) | |
| | | |
| Total deferred tax liabilities | (67,701) | | | (62,548) | |
| | | |
| Deferred tax assets: | | | |
| Captive insurance subsidiary | 2,542 | | | 2,119 | |
| Accrued liabilities | 3,560 | | | 3,196 | |
| Stock compensation | 5,607 | | | 4,787 | |
| | | |
| Operating and Finance lease liabilities | 8,033 | | | 9,249 | |
| | | |
| Other | 1,566 | | | 1,539 | |
| State deferred taxes | 712 | | | 643 | |
| Total deferred tax assets | 22,020 | | | 21,533 | |
| | | |
| | | |
| | | |
| Net deferred income tax liabilities | $ | (45,681) | | | $ | (41,015) | |
The state income tax net operating losses expire between 2026 and 2045. The tax years 2021 through 2024 remain open related to the state returns, and 2022 through 2024 for the federal returns.
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.