Franklin BSP Realty Trust, Inc.FBRT
Franklin BSP Realty Trust, Inc. Income Taxes Disclosure
Note 24 - Income Taxes
The Company has conducted its operations to qualify as a REIT for U.S. federal income tax purposes beginning with its taxable year ended December 31, 2013. As a REIT, if the Company meets certain organizational and operational requirements and distributes at least 90% of its "REIT taxable income" (determined before the deduction of dividends paid and excluding net capital gains) to its stockholders in a year, it will not be subject to U.S. federal income tax to the extent of the income that it distributes. However, even if the Company qualifies for taxation as a REIT, it may be subject to certain state and local taxes on income in addition to U.S. federal income and excise taxes on its undistributed income. The Company, through its TRSs, is indirectly subject to U.S. federal, state and local income taxes. The Company’s TRSs are not consolidated for U.S. federal income tax purposes, but is instead taxed as a C corporations. For financial reporting purposes, the TRSs are consolidated and a provision for current and deferred taxes is established for the portion of earnings recognized by the Company with respect to its interest in its TRSs. Total (provision)/benefit for income taxes for the years ended December 31, 2025, 2024 and 2023 were $(3.9) million, $(1.1) million and $2.8 million, respectively. For the reporting period, the Company paid $881,967 in federal income taxes, and $51,313 in state and local income taxes to various jurisdictions including New York State and New York City. As of December 31, 2025, our taxable REIT subsidiaries have an estimated $21.0 million of federal net operating loss ("NOL") carryforwards and $3.8 million of state and local NOL carryforwards. The NOL carryforwards are subject to certain limitations. The Company has analyzed and determined that future earnings of the Company's TRS are sufficient to support a conclusion that valuation allowance for federal NOLs is not necessary as of December 31, 2025. The Company has also evaluated its state NOLs and recorded a valuation allowance for the states where it is more likely than not that it will be realized.
NewPoint and the commercial real estate conduit business are operated through the Company’s TRS, which is subject to U.S. federal, state and local income taxes. In general, the TRS may hold assets that the REIT cannot hold directly and may engage in real estate or non-real estate-related activities. Current and deferred taxes are recorded on the portion of earnings (losses) recognized by us with respect to our interest in the TRS. Deferred income tax assets and liabilities are calculated based on temporary differences between our GAAP consolidated financials statements and the federal, state, local tax basis of assets and liabilities as of the consolidated balance sheets. We evaluate the realizability of our deferred tax assets (e.g., net operating loss and capital loss carryforwards) and recognize a valuation allowance if, based on the available evidence, it is more likely than not that some portion or all our deferred tax assets will not be realized. When evaluating the realizability of our deferred tax assets, we consider estimates of expected future taxable income, existing and projected book/tax differences, tax planning strategies available and the general and industry specific economic outlook.
The Company uses a more-likely-than-not threshold for recognition and derecognition of tax positions taken or to be taken in a tax return. The Company has assessed its tax positions for all open tax years beginning with December 31, 2018 and concluded that there were no uncertainties to be recognized. The Company’s accounting policy with respect to interest and penalties related to tax uncertainties is to classify these amounts as provision for income taxes.
Components of the provision for income taxes consist of the following (dollars in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current (provision)/benefit for income taxes | |||||||||||||||||
| U.S. Federal | $ | (605) | $ | (1,299) | $ | (12) | |||||||||||
| State and local | (100) | (152) | (1) | ||||||||||||||
| Total current (provision)/benefit for income taxes | $ | (705) | $ | (1,451) | $ | (13) | |||||||||||
| Deferred (provision)/benefit for income taxes | |||||||||||||||||
| U.S. Federal | $ | (2,390) | $ | 446 | $ | 2,670 | |||||||||||
| State and local | (789) | (115) | 100 | ||||||||||||||
| Total deferred (provision)/benefit for income taxes | $ | (3,179) | $ | 331 | $ | 2,770 | |||||||||||
| Total (provision)/benefit for income taxes | $ | (3,884) | $ | (1,120) | $ | 2,757 | |||||||||||
A reconciliation of our effective income tax rate, as well as our effective income tax rate as a percentage of pre-tax income, to the U.S. federal statutory rate is as follows (dollars in thousands):
| Rate Reconciliation - Consolidated for F/S | |||||||||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||||||||
| Pretax Income | |||||||||||||||||||||||
| U.S. Federal Statutory Rate | $ | 18,473 | 21.00 | % | 21.00 | % | 21.00 | % | |||||||||||||||
| REIT non-taxable income | (15,482) | (17.60) | % | (20.09) | % | (22.88) | % | ||||||||||||||||
| State and local taxes, net of federal benefit | 553 | 0.63 | % | 0.29 | % | (0.07) | % | ||||||||||||||||
| Other | 340 | 0.40 | % | — | % | — | % | ||||||||||||||||
| Effective Income Tax Rate | $ | 3,884 | 4.43 | % | 1.20 | % | (1.95) | % | |||||||||||||||
The significant components of our deferred tax assets and liabilities of our TRS Consolidated Group are as follows (in thousands):
| 2025 | 2024 | ||||||||||
| Deferred Tax Assets | |||||||||||
| Net operating loss carryforwards | $ | 4,291 | $ | 3,452 | |||||||
| Interest expense carryforwards | 205 | — | |||||||||
| Intangible Assets | 1,842 | — | |||||||||
| Other | 6 | 8 | |||||||||
| Total Deferred Tax Assets | $ | 6,344 | $ | 3,460 | |||||||
| Valuation allowance | (244) | — | |||||||||
| Total Deferred Tax Assets, Net | $ | 6,100 | $ | 3,460 | |||||||
| Deferred Tax Liabilities | |||||||||||
| Contributed Assets - Built in Gain | $ | 7,145 | $ | — | |||||||
| Mortgage Servicing Rights | 5,821 | — | |||||||||
| Other | 7 | 1 | |||||||||
| Deferred Tax Liabilities, Net | $ | 12,973 | $ | 1 | |||||||
| Net DTA/(DTL) | $ | (6,873) | $ | 3,459 | |||||||
As of December 31, 2025, the Company had federal net operating loss carryforwards of $21.0 million that do not expire.
As of December 31, 2025, the Company had state net operating loss carryforwards of $3.8 million that begin to expire in 2030.
The Company’s income tax returns are subject to examination by tax authorities generally for a period of three to four years after filing, depending on the jurisdiction. Accordingly, tax years 2021-2024 remain open to examination.
The tax characteristics of $1.42 distributions per share of common stock declared during 2025 was $0.84 ordinary income and $0.58 return of capital. The tax characteristics of the $1.88 per share of Series E Preferred Stock declared during 2025 was $1.88 ordinary income. The tax characteristics of the $424.86 per share of Series H Preferred Stock declared during 2025 was $424.86 ordinary income. The ordinary income per share of each stockholder represents the ordinary dividend that may be eligible for the 20% deduction applicable to qualified REIT dividends under Internal Revenue Code Section 199A.
The tax characteristics of $1.42 distributions per share of Common Stock declared during 2024 was $1.42 ordinary income. The tax characteristics of the $1.88 per share of Series E Preferred Stock declared during 2024 was $1.88 ordinary income. The tax characteristics of the $424.86 per share of Series H Preferred Stock declared during 2024 was $424.86 ordinary income. The ordinary income per share of each stockholder represents the ordinary dividend that may be eligible for the 20% deduction applicable to qualified REIT dividends under Internal Revenue Code Section 199A.
The Company utilizes the TRSs to reduce the impact of the prohibited transaction tax and to avoid penalty for the holding of assets not qualifying as real estate assets for purposes of the REIT asset tests. Any income associated with a TRS is fully taxable because the TRS is subject to federal and state income taxes as a domestic C corporation based upon its net income.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 25, 2026 | Showing above |
| 2024 | Feb 26, 2025 | |
| 2023 | Feb 26, 2024 | |
| 2022 | Mar 16, 2023 | |
| 2021 | Feb 25, 2022 | |
| 2020 | Mar 11, 2021 | |
| 2019 | Mar 17, 2020 | |
| 2018 | Mar 29, 2019 | |
| 2017 | Mar 16, 2018 | |
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.