Net Lease Office PropertiesNLOP
Net Lease Office Properties Income Taxes Disclosure
Income Taxes
Income Tax Provision
The components of our provision for (benefit from) income taxes for the periods presented are as follows (in thousands):
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Federal | |||||||||||||||||
| Current | $ | 3 | $ | 11 | $ | 58 | |||||||||||
| 3 | 11 | 58 | |||||||||||||||
| State and Local | |||||||||||||||||
| Current | 26 | 242 | 357 | ||||||||||||||
| 26 | 242 | 357 | |||||||||||||||
| Foreign | |||||||||||||||||
| Current | 129 | 636 | 1,211 | ||||||||||||||
| Deferred | — | (3,271) | (1,201) | ||||||||||||||
| 129 | (2,635) | 10 | |||||||||||||||
| Total Provision for (Benefit from) Income Taxes | $ | 158 | $ | (2,382) | $ | 425 | |||||||||||
A reconciliation of effective income tax for the periods presented is as follows (in thousands):
| Years Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Pre-tax loss attributable to taxable subsidiaries | $ | (13,581) | $ | (58,474) | $ | (32,176) | |||||||||||
Federal provision at statutory tax rate (21%) | $ | (2,852) | $ | (12,280) | $ | (6,757) | |||||||||||
| Change in valuation allowance | 2,931 | 10,592 | 3,179 | ||||||||||||||
| Non-deductible expense | 63 | 5 | 1 | ||||||||||||||
| Rate differential | (45) | (494) | (63) | ||||||||||||||
| State and local taxes, net of federal benefit | 29 | (36) | (30) | ||||||||||||||
Election of TRS Status (a) | — | — | 4,615 | ||||||||||||||
| Other | 32 | (169) | (520) | ||||||||||||||
| Total Provision for (Benefit from) Income Taxes | $ | 158 | $ | (2,382) | $ | 425 | |||||||||||
__________
(a)Represents deferred taxes recorded as a result of our taxable REIT subsidiary (“TRS”) status election for certain of our domestic real estate properties.
Deferred Income Taxes
Deferred income taxes at December 31, 2025 and 2024 consist of the following (in thousands):
| December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred Tax Assets | |||||||||||
| Net operating loss and other tax credit carryforwards | $ | 7,706 | $ | 872 | |||||||
| Basis differences — foreign investments | — | 1,432 | |||||||||
| Other | 771 | 5,262 | |||||||||
| Total deferred tax assets | 8,477 | 7,566 | |||||||||
| Valuation allowance | (8,477) | (7,566) | |||||||||
| Net Deferred Tax Assets | $ | — | $ | — | |||||||
There were no deferred tax liabilities as of December 31, 2025 or 2024. Our deferred tax assets and liabilities are primarily the result of temporary differences related to the following:
•Basis differences between tax and GAAP for certain real estate investments. For income tax purposes, in certain acquisitions, we assume the seller’s basis, or the carry-over basis, in the acquired assets. The carry-over basis is typically lower than the purchase price, or the GAAP basis, resulting in a deferred tax liability with an offsetting increase to goodwill or the acquired tangible or intangible assets;
•Timing differences generated by differences in the GAAP basis and the tax basis of assets such as those related to capitalized acquisition costs, straight-line rent, prepaid rents, and intangible assets; and
•Tax net operating losses in certain subsidiaries that may be realized in future periods if the respective subsidiary generates sufficient taxable income.
As of December 31, 2025, U.S. federal net operating loss carryforwards were $35.0 million, which will not expire as they can be carried forward indefinitely. There are also state net operating loss carryforwards of $5.3 million, which will begin to expire in 2044.
Our taxable subsidiaries recognize tax positions in the financial statements only when it is more likely than not that the position will be sustained on examination by the relevant taxing authority based on the technical merits of the position. A position that meets this standard is measured at the largest amount of benefit that will more likely than not be realized on settlement. A liability is established for differences between positions taken in a tax return and amounts recognized in the financial statements.
At both December 31, 2025 and 2024, we had unrecognized tax benefits totaling $0.1 million that, if recognized, would have a favorable impact on our effective income tax rate in future periods. These unrecognized tax benefits are recorded as liabilities within Accounts payable, accrued expenses and other liabilities on our consolidated balance sheets. We recognize interest and penalties related to uncertain tax positions in income tax expense. At both December 31, 2025 and 2024, we had less than $0.1 million of accrued interest related to uncertain tax positions.
Income Taxes Paid
Income taxes paid were $0.7 million, $0.7 million, and $2.7 million during the years ended December 31, 2025, 2024, and 2023, respectively.
We elected to be taxed as a REIT under Section 856 through 860 of the Internal Revenue Code effective as of November 1, 2023. In order to maintain our qualification as a REIT, we are required, among other things, to distribute at least 90% of our REIT net taxable income to our stockholders and meet certain tests regarding the nature of our income and assets. As a REIT, we are not subject to federal income taxes on our income and gains that we distribute to our stockholders as long as we satisfy certain requirements, principally relating to the nature of our income and the level of our distributions, as well as other factors. We believe that we have operated, and we intend to continue to operate, in a manner that allows us to continue to qualify as a REIT. We conduct business in the United States, and as a result, we or one or more of our subsidiaries file income tax returns in the United States federal jurisdiction and various state, local, and foreign jurisdictions.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 25, 2026 | Showing above |
| 2024 | Feb 27, 2025 | |
| 2023 | Mar 6, 2024 | |
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.