Sunstone Hotel Investors, Inc. Income Taxes Disclosure
10. Income Taxes
The significant components of the Company’s deferred tax assets and liabilities were as follows (in thousands):
December 31, | ||||||
| 2025 | | 2024 | |||
Deferred Tax Assets: | ||||||
Net operating loss carryforward | $ | 23,859 | $ | 22,129 | ||
Other reserves |
| 980 |
| 885 | ||
State taxes and other |
| 803 |
| 1,371 | ||
Depreciation | 1,513 | 1,695 | ||||
Total gross deferred tax assets | 27,155 | 26,080 | ||||
Deferred Tax Liabilities: | ||||||
Amortization | (70) | (55) | ||||
Deferred revenue | (13) | (22) | ||||
Total gross deferred tax liabilities | (83) | (77) | ||||
Less: valuation allowance | (27,072) | (26,003) | ||||
Deferred tax assets, net | $ | $ | ||||
At December 31, 2025 and 2024, the net operating loss carryforwards for federal income tax purposes totaled approximately $108.9 million and $102.0 million, respectively, of which $8.2 million will expire between 2031 and 2033. The remaining losses can be carried forward indefinitely and are subject to an 80% taxable income limitation.
The Company’s income tax (provision) benefit, net was included in the consolidated statements of operations as follows (in thousands):
2025 | 2024 | 2023 |
| |||||||
Current: | ||||||||||
Federal | $ | (1) | $ | (5) | $ | (14) | ||||
State |
| (215) |
| 1,105 |
| (4,548) | ||||
Current income tax (provision) benefit, net | (216) | 1,100 | (4,562) | |||||||
Deferred: | ||||||||||
Federal | 965 | (734) | (123) | |||||||
State |
| 104 |
| (450) |
| (208) | ||||
Change in valuation allowance |
| (1,069) |
| 1,184 |
| 331 | ||||
Deferred income tax (provision) benefit, net | — | — | — | |||||||
Income tax (provision) benefit, net | $ | (216) | $ | 1,100 | $ | (4,562) | ||||
A reconciliation of the income tax provision, net to the amount computed by applying the statutory U.S. federal income tax rate of 21% to income before income taxes after the adoption of ASU 2023-09 is as follows (in thousands):
2025 | ||||||
Amount | % | |||||
U.S. federal statutory tax rate | $ | (1,774) | 21.0 | % | ||
Tax impact of REIT election | 4,979 | (58.9) | % | |||
(215) | 2.5 | % | ||||
Change in valuation allowance | (926) | 11.0 | % | |||
Key money permanent difference | (1,680) | 19.9 | % | |||
Corporate overhead allocation permanent difference | (528) | 6.2 | % | |||
Other permanent differences | (49) | 0.6 | % | |||
Other deferred adjustments | (23) | 0.3 | % | |||
$ | (216) | 2.6 | % | |||
| (1) | State taxes in Massachusetts made up the majority (greater than 50 percent) of the tax effect in this category. |
The following table presents the required disclosures prior to the Company’s adoption of ASU 2023-09 and reconciles the differences between the income tax benefit (provision) calculated at the statutory U.S. federal income tax rate of 21% and the actual income tax benefit (provision), net for the years ended December 31, 2024 and December 31, 2023 (in thousands):
2024 | 2023 | |||||
Expected federal tax expense at statutory rate | $ | (5,887) | $ | (45,033) | ||
Tax impact of REIT election | 6,004 | 40,767 | ||||
Expected tax benefit (provision) of TRS | 117 | (4,266) | ||||
State income tax benefit, net of federal (provision) | 685 | (164) | ||||
Change in valuation allowance | 1,184 | 331 | ||||
Other permanent differences | (886) | (463) | ||||
Income tax benefit (provision), net | $ | 1,100 | $ | (4,562) | ||
The Company’s tax years from 2022 to 2025 will remain open to examination by the federal and state authorities for three and four years, respectively.
The table below represents the changes to the Company's valuation allowance (in thousands):
2025 | 2024 | 2023 | ||||||||
Valuation allowance beginning of the period | $ | 26,003 | $ | 27,187 | $ | 27,518 | ||||
Increases (decreases) charged to income taxes | 1,069 | (1,184) | (331) | |||||||
Valuation allowance end of period | $ | 27,072 | $ | 26,003 | $ | 27,187 | ||||
Cash (refunded) paid for income taxes, net, by jurisdiction pursuant to the disclosure requirements of ASU 2023-09 for the year ended December 31, 2025 is as follows (in thousands):
2025 | |||
Federal | $ | 3 | |
State: | |||
California |
| (255) | |
Massachusetts | (1,140) | ||
Other States | (5) | ||
State total | (1,400) | ||
Cash (refunded) paid for income taxes, net | $ | (1,397) | |
Characterization of Distributions
For income tax purposes, distributions paid consist of ordinary income, capital gains, return of capital or a combination thereof. Distributions per share for the years ended December 31, 2025, 2024, and 2023, were characterized as follows:
2025 | 2024 | 2023 |
| |||||||||||||
| Amount | | % | | Amount | | % | | Amount | | % |
| ||||
Common Stock: | ||||||||||||||||
Ordinary income (1) | $ | 0.327 | (2) | 90.7 | % | $ | 0.340 | (3) | 100 | % | $ | — | — | % | ||
Capital gain |
| 0.033 | (2) | 9.3 |
| — | — |
| 0.300 | 100 | ||||||
Return of capital |
| — |
| — |
| — |
| — |
| — |
| — | ||||
Total | $ | 0.360 |
| 100 | % | $ | 0.340 |
| 100 | % | $ | 0.300 |
| 100 | % | |
Preferred Stock — Series G | ||||||||||||||||
Ordinary income (1) | $ | 1.248 | 90.7 | % | $ | 0.998 | 100 | % | $ | — | — | % | ||||
Capital gain |
| 0.127 | 9.3 |
| — | — |
| 0.469 | 100 | |||||||
Return of capital |
| — |
| — |
| — |
| — |
| — |
| — | ||||
Total | $ | 1.375 |
| 100 | % | $ | 0.998 |
| 100 | % | $ | 0.469 |
| 100 | % | |
Preferred Stock — Series H | ||||||||||||||||
Ordinary income (1) | $ | 1.390 | 90.7 | % | $ | 1.531 | 100 | % | $ | — | — | % | ||||
Capital gain |
| 0.141 | 9.3 |
| — | — |
| 1.531 | 100 | |||||||
Return of capital |
| — |
| — |
| — |
| — |
| — |
| — | ||||
Total | $ | 1.531 |
| 100 | % | $ | 1.531 |
| 100 | % | $ | 1.531 |
| 100 | % | |
Preferred Stock — Series I | ||||||||||||||||
Ordinary income (1) | $ | 1.293 | 90.7 | % | $ | 1.425 | 100 | % | $ | — | — | % | ||||
Capital gain |
| 0.132 | 9.3 |
| — | — |
| 1.425 | 100 | |||||||
Return of capital |
| — |
| — |
| — |
| — |
| — |
| — | ||||
Total | $ | 1.425 |
| 100 | % | $ | 1.425 |
| 100 | % | $ | 1.425 |
| 100 | % | |
| (1) | Ordinary income qualifies for Section 199A treatment per the 2017 Tax Cuts and Jobs Act. |
| (2) | The 2025 common stock distribution is treated as paid in two tax years for income tax purposes, with approximately $0.33 per share taxable in 2025 and $0.03 per share taxable in 2026. |
| (3) | The 2024 common stock distribution is treated as paid in two tax years for income tax purposes, with approximately $0.28 per share taxable in 2024 and $0.06 per share taxable in 2025. |
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 27, 2026 | Showing above |
| 2024 | Feb 21, 2025 | |
| 2023 | Feb 23, 2024 | |
| 2022 | Feb 23, 2023 | |
| 2021 | Feb 23, 2022 | |
| 2020 | Feb 12, 2021 | |
| 2019 | Feb 19, 2020 | |
| 2018 | Feb 14, 2019 | |
| 2017 | Feb 14, 2018 | |
| 2016 | Feb 23, 2017 | |
| 2015 | Feb 23, 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.