Income Taxes

On December 30, 2022, the Company announced that it was changing its business strategy by expanding the scope of the assets and businesses the Company may own and operate. By investing in other asset types, the Company may generate income that does not otherwise constitute income that qualifies for purposes of qualifying as a REIT. As a result, on January 9, 2023, the Company’s board of directors authorized termination of the Company’s REIT election which became effective on January 1, 2023. Historically, effective with the taxable year ended December 31, 2014 through December 31, 2022, the Company had elected to be taxed as a REIT. As a REIT, the Company was allowed a special deduction for dividends paid.

A REIT may lease property on an arm's length basis to a TRS so long as no more than 10% of the property is rented to TRSs of the REIT and related parties. In the third quarter of 2021, the Company launched Innovate NYC, a co-working company, at 1140 Avenue of the Americas, which was a TRS for the taxable years ended December 31, 2022 and 2021. During those taxable years, the Company leased property on an arm's length basis to Innovate NYC; and that property represented 10% or less of the property the Company rents to its TRS (Innovate NYC) and related parties. The Company did not record a tax provision during the year ended December 31, 2022 since the TRS did not earn any taxable income. The Company recorded a tax provision of $37,000 for the year ended December 31, 2021.

As of December 31, 2022, the Company had no material uncertain tax positions. The taxable years subsequent to and including December 31, 2018 remain open to examination by the major taxing jurisdictions to which the Company is subject.

As a REIT, the Company had deferred tax items, however, due to the Company’s prior intent and ability to maintain REIT status, they were reflected an effective tax rate of zero upon their future reversal. Because the Company has announced they were terminating their REIT election as of January 1, 2023, the future reversal of these temporary differences will occur as a taxable corporation at full rates. Accordingly, the tax effects of temporary difference that give rise to significant portions of the deferred tax assets and liabilities as of December 31, 2022 are presented as follows:


(In thousands)	As of December 31, 2022
Deferred Tax Assets:
Depreciation and amortization	$	23,008
Deferred leasing costs	1,145
Restricted stock awards and 2020 OPP	6,458
Deferred revenue	1,317
Operating lease liabilities	17,110
Net operating loss carryforwards	53,613
Other	129
Total deferred tax assets	102,780
Deferred Tax Liabilities:
Straight-line rent	9,105
Operating leases right-to-use assets	17,184
Total deferred tax liabilities	26,289
Net deferred tax assets before valuation allowance	76,491
Valuation allowance	(76,491)
Net deferred tax assets	$	—

The Company is subject to U.S. Federal and state corporate income taxes. As of December 31, 2022, the Company has a net operating loss carryforward of approximately $161.7 million that is available to offset future U.S. Federal taxable income, if and when it arises. The net operating loss carryforward will begin to expire during 2035. A portion of the net operating loss carryforward may be limited in its use due to certain provisions of the Tax Code, including but not limited to Section 382, which imposes an annual limit on the amount of net operating losses and net capital loss carryforward that the Company can use to offset future taxable income. Generally, the Company is no longer subject to tax examination by tax authorities for years prior to 2019.

Because of the Company’s recent operating history of taxable losses and the impacts of the COVID-19 pandemic on the results of operations, the Company is not able to conclude that it is more likely than not it will realize the future benefit of its deferred tax assets; thus the Company has provided a 100% valuation allowance as of December 31, 2022. If and when the Company believes it is more likely than not that it will recover its deferred tax assets, the Company will reverse the valuation allowance as an income tax benefit in its consolidated statements of comprehensive income (loss).

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.

American Strategic Investment Co. Income Taxes Disclosure

About Income Taxes Disclosures

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