RLJ Lodging TrustRLJ

RLJ Lodging Trust Income Taxes Disclosure

10-KFiled Feb 27, 20265 min read
Income Taxes
Current income tax expense represents the amounts expected to be reported on the Company’s income tax returns, and deferred tax expense or benefit represents the change in the net deferred tax assets and liabilities. The deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates that will be in effect when these differences reverse.

The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, and for net operating loss, capital loss and tax credit carryforwards. The deferred tax assets and liabilities are measured using the enacted income tax rates in effect for the year in which those temporary differences are expected to be realized or settled. The effect on the deferred tax assets and liabilities from a change in tax rates is recognized in earnings in the period when the new rate is enacted. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on consideration of all available evidence, including the future reversals of existing taxable temporary differences, future projected taxable income and tax planning strategies.

For federal income tax purposes, the cash distributions to shareholders are characterized as follows:

For the Years Ended December 31,
202520242023
Common distributions:
Ordinary income71.4 %96.2 %90.0 %
Return of capital28.6 %— — 
Capital gains— 3.8 %— 
Qualified dividend— — 10.0 %
100.0 %100.0 %100.0 %
Preferred distributions:
Ordinary income100.0 %96.2 %90.0 %
Return of capital— — — 
Capital gains— 3.8 %— 
Qualified dividend— — 10.0 %
100.0 %100.0 %100.0 %

The components of the income tax provision are as follows (in thousands):
For the Years Ended December 31,
202520242023
Current:
Federal$(64)$(181)$(200)
State(1,071)(1,408)(1,061)
Deferred:
Federal(11)(8)4 
State(2)(2)1 
Income tax expense $(1,148)$(1,599)$(1,256)
The provision for income taxes is different from the amount of income tax expense that is determined by applying the applicable U.S. statutory federal income tax rate to pretax income as a result of the following differences (in thousands):
For the Years Ended December 31,
202520242023
Amount%Amount (3)%Amount (3)%
Expected U.S. federal tax expense at statutory rate$(6,237)21.0 %$(14,656)21.0 %$(16,353)21.0 %
Tax impact of REIT election5,359 (18.0)19,295 (27.6)15,443 (19.8)
Expected tax (expense) benefit at TRS(878)3.0 4,639 (6.6)(910)1.2 
Change in valuation allowance4,284 (14.4)(5,002)7.2 467 (0.6)
State income tax expense, net of federal benefit (1)(846)2.8 (1,111)1.6 (838)1.1 
Impact of subsidiary liquidation(3,390)11.4 — — — — 
Other items (2)(318)1.1 (125)0.1 25 — 
Income tax expense$(1,148)3.9 %$(1,599)2.3 %$(1,256)1.7 %
(1)State taxes in Texas and Louisiana made up the majority (greater than 50.0%) of the tax effect in this category for all periods presented.
(2)No individual item included in this category exceeded the quantitative threshold for separate disclosure.
(3)Certain amounts for the years ended December 31, 2024 and 2023 have been reclassified due to the adoption of ASU 2023-09.

Deferred income taxes represent the tax effect from continuing operations of the differences between the book and tax basis of the assets and liabilities. The deferred tax assets (liabilities) include the following (in thousands):
December 31, 2025December 31, 2024
Deferred tax liabilities:
Partnership basis$(2,649)$(2,569)
Prepaid expenses(1,517)(1,376)
Deferred tax liabilities$(4,166)$(3,945)
Deferred tax assets:
Property and equipment$6,663 $6,872 
Incentive and vacation accrual2,942 2,964 
Deferred revenue - key money5,682 3,285 
Allowance for doubtful accounts44 45 
Other913 971 
Net operating loss carryforwards63,951 70,855 
Federal historic tax credit824 824 
Valuation allowance(76,853)(81,858)
Deferred tax assets$4,166 $3,958 

Deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based on the consideration of all available evidence, including the future reversals of existing taxable temporary differences, future projected taxable income, and tax planning strategies. Valuation allowances are provided if, based upon the weight of the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. The Company would record a valuation allowance to reduce its deferred tax assets to the amount that is most likely to be utilized in future periods to offset taxable income. Based upon the available objective evidence at December 31, 2025, the Company determined it was more likely than not that the deferred tax assets related to the net operating loss ("NOL") carryforwards of RLJ Lodging Trust Master TRS, Inc., the Company's primary TRS, would not be utilized in future periods. The Company considered all available evidence, both positive and negative, including cumulative losses in recent years and its current forecast of future income in its analysis. As of December 31, 2025 and 2024, the Company had a valuation allowance of approximately $76.9 million and $81.9 million, respectively, related to NOL carryforwards, historic tax credits, and other deferred tax assets of its TRSs.
The Company’s federal NOLs generated prior to 2018 have begun to expire, while federal NOLs generated after 2017 may be carried forward indefinitely. The Company's historic tax credits will begin to expire in 2035. The utilization of these NOLs and tax credits is subject to annual limitations under applicable federal and state tax laws.

The Company is subject to examination by U.S. federal and various state and local jurisdictions.  The tax years subject to examination vary by jurisdiction.  With few exceptions, as of December 31, 2025, the Company is no longer subject to U.S. federal or state and local tax examinations by tax authorities for the tax years of 2021 and before. 
The Company had no accruals for tax uncertainties as of December 31, 2025 and 2024.

Historical Timeline

Fiscal YearFiled
2025Feb 27, 2026Showing above
2024Feb 26, 2025
2023Feb 27, 2024
2022Feb 28, 2023
2021Feb 24, 2022
2020Feb 26, 2021
2019Feb 26, 2020
2018Mar 1, 2019
2017Feb 28, 2018
2016Feb 23, 2017
2015Feb 25, 2016

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.

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