NEW ENGLAND REALTY ASSOCIATES LIMITED PARTNERSHIP Income Taxes Disclosure
NOTE 14. TAXABLE INCOME AND TAX BASIS
Taxable income reportable by the Partnership and includable in its partners’ tax returns is different than financial statement income because of different depreciation methods, different tax lives, other items with limited tax deductibility carryovers and timing differences related to prepaid rents, allowances and intangible assets at significant acquisitions. Federal taxable income of approximately $21,102,000 was approximately $5,440,000 more than statement income for the year ended December 31, 2024. The Federal cumulative tax basis of the Partnership’s real estate at December 31, 2024 is approximately $10,000,000 less than the statement basis. The primary reasons for the difference in tax basis are accelerated depreciation, bonus depreciation and other timing differences. The Partnership’s Federal tax basis in its joint venture investments is approximately $1,000,000 less than statement basis. State taxable income may be significantly different due to different tax treatments for certain items.
Certain entities included in the Partnership’s consolidated financial statements are subject to certain state taxes. These taxes are not significant and are recorded as operating expenses in the accompanying consolidates financial statements.
The following reconciles GAAP net income to taxable income:
For the year ended |
| |||||||||
December 31, |
| |||||||||
| 2024 |
| 2023 |
| 2022 |
| ||||
(in thousands) |
| |||||||||
Financial statement (“book”) net income (loss) |
| $ | 15,662 |
| $ | 8,454 |
| $ | 3,723 | |
Book/Tax differences from depreciation |
| 3,610 |
| (2,300) |
| 4,160 | ||||
Book/Tax differences from Investment Properties |
| 104 |
| 351 |
| 1,258 | ||||
Increase in prepaid rent and allowances |
| 435 |
| 732 |
| 554 | ||||
Other items | 1,291 | 2,752 | 1,273 | |||||||
Taxable income | $ | 21,102 | $ | 9,989 | $ | 10,968 | ||||
The Partnership adopted the amended provisions related to uncertain tax provisions of ASC 740, Income Taxes. As a result of the implementation of the guidance, the Partnership recognized no material adjustments regarding its tax accounting treatment. The Partnership expects to recognize interest and penalties related to uncertain tax positions, if any, as income tax expense, which would be included in general and administrative expense.
In the normal course of business the Partnership or one of its subsidiaries is subject to examination by federal, state and local jurisdictions in which it operates, where applicable. As of December 31, 2024, the tax years that generally remain subject to examination by the major tax jurisdictions under the statute of limitations is from the year 2021 forward.
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.