Income Taxes
Beginning with our inception in 1991, we elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code commencing with our first taxable year. To qualify as a REIT for federal income tax purposes, at least 90% of taxable income (excluding 100% of net capital gains) must be distributed to stockholders. REITs that do not distribute a certain amount of taxable income in the current year are also subject to a 4% federal excise tax. Undistributed net income for federal income tax purposes differs from undistributed net income for financial statement purposes primarily due to the recognition of straight-line rent revenue for financial reporting purposes, differences in the basis of acquisitions, recording of impairments, differing useful lives and depreciation and amortization methods for real property and the provision for loan losses for financial reporting purposes versus bad debt expense for federal income tax purposes.
During the years ended December 31, 2025, 2024 and 2023, we recognized $0.2 million, $0.1 million and $0.1 million, respectively, of state current income tax expense in our consolidated statements of income. We made state income tax payments of $0.2 million, $0.2 million and $0.2 million, respectively, during the years ended December 31, 2025, 2024 and 2023. We had no federal income taxes in these years.
A summary of our deferred tax assets and liabilities follows:
| | | | | | | | | | | | | |
| December 31, | | |
| 2025 | | 2024 | | |
| Deferred tax assets: | | | | | |
| Federal net operating loss carryforwards | $ | 4,201 | | | $ | 2,925 | | | |
| State net operating loss carryforwards | 279 | | | 75 | | | |
| Deferred income | 234 | | | — | | | |
| Other | 12 | | | — | | | |
| Total deferred tax assets | 4,726 | | | 3,000 | | | |
| Valuation allowance | (277) | | | (920) | | | |
| Total deferred tax assets, net of valuation allowance | 4,449 | | | 2,080 | | | |
| Deferred tax liabilities: | | | | | |
| Partnership differences | (3,899) | | | (2,080) | | | |
| Real estate properties | (550) | | | — | | | |
| Total deferred tax liabilities | (4,449) | | | (2,080) | | | |
| Total deferred tax assets, net | $ | — | | | $ | — | | | |
As of December 31, 2025, we had $20.0 million of federal net operating loss carryforwards of which $0.9 million expires in 2035 through 2036 and the remainder has no expiration. We had $5.9 million of state net operating loss carryforwards as of December 31, 2025 of which $1.0 million expires in 2035 and the remainder has no expiration.
A summary of our cash distributions paid to common stockholders for federal income tax purposes on a per share basis were as follows (unaudited):
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2025 | | 2024 | | 2023 |
| Ordinary income | $ | 3.16 | | | $ | 2.84 | | | $ | 2.41 | |
| Capital gains | — | | | — | | | 0.25 | |
| Return of capital | 0.32 | | | — | | | 0.94 | |
| Total cash distributions on a per share basis | $ | 3.48 | | | $ | 2.84 | | | $ | 3.60 | |
Our income tax returns are generally subject to examination by the Internal Revenue Service or state and local taxing authorities for the year ended December 31, 2022 and subsequent years. The statutes of limitations for state and local examinations may vary across the states in which we operate.
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.