Service Properties TrustSVC
Service Properties Trust Income Taxes Disclosure
Income Taxes
The components of income (loss) before income taxes were attributable to the following regions:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Domestic | $ | (226,480) | $ | — | $ | — | |||||||||||
| Foreign | 13,441 | — | — | ||||||||||||||
| $ | (213,039) | $ | — | $ | — | ||||||||||||
Our provision (benefit) for income taxes consists of the following:
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current: | |||||||||||||||||
| Federal | $ | — | $ | — | $ | — | |||||||||||
| State | 620 | 931 | (106) | ||||||||||||||
| Foreign | 1,775 | 1,105 | 503 | ||||||||||||||
| 2,395 | 2,036 | 397 | |||||||||||||||
| Deferred: | |||||||||||||||||
| Foreign | (13,112) | (634) | (1,895) | ||||||||||||||
| (13,112) | (634) | (1,895) | |||||||||||||||
| $ | (10,717) | $ | 1,402 | $ | (1,498) | ||||||||||||
The table below is a reconciliation of the statutory income tax rate to the effective tax rate for 2025, in accordance with the updated requirements of ASU No. 2023-09, Income Taxes (Topic 740): Improvement to Income Tax Disclosures. See Note 2 for additional details on the adoption of ASU No. 2023-09.
| December 31, 2025 | |||||||||||
| Amount | Percent | ||||||||||
| U.S. federal statutory tax rate | $ | (44,738) | 21.0 | % | |||||||
| Nontaxable income for SVC | 44,738 | (21.0) | % | ||||||||
State and local income tax, net of federal income tax effects (1) | 620 | (0.3) | % | ||||||||
| Foreign tax effects: | |||||||||||
| Puerto Rico | 457 | (0.2) | % | ||||||||
| Canada | 1,318 | (0.6) | % | ||||||||
| Foreign deferred | 1,265 | (0.6) | % | ||||||||
| Foreign tax rate change | (14,377) | 6.7 | % | ||||||||
| Effective tax rate | $ | (10,717) | 5.0 | % | |||||||
(1) State taxes in Texas make up a majority (greater than 50%) of the tax effect in this category.
For the year ended December 31, 2025, income taxes paid (net of refunds) were ($639), with the majority of payments (refunds) attributable to Texas, Puerto Rico, and Canada in the amounts of $710, $453 and ($1,735), respectively.
The following table reconciles the statutory income tax rate to the effective tax rate prior to the adoption of ASU 2023-09:
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| Taxes at statutory U.S. federal income tax rate | 21.0 | % | 21.0 | % | |||||||
| Nontaxable income of SVC | (21.0) | % | (21.0) | % | |||||||
| State and local income taxes, net of federal tax benefit | (0.3) | % | 0.3 | % | |||||||
| Foreign taxes | (0.2) | % | (6.9) | % | |||||||
| Foreign tax rate change | — | % | 11.0 | % | |||||||
| Effective tax rate | (0.5) | % | 4.4 | % | |||||||
Deferred income tax balances generally reflect the net tax effects of temporary differences between the carrying amounts of certain of our assets and liabilities in our consolidated balance sheets and the amounts used for income tax purposes and are stated at enacted tax rates expected to be in effect when taxes are actually paid or recovered. In December 2023, our subsidiary which operates in Puerto Rico elected to be taxed as a corporation for purposes of Puerto Rico tax law. This election increased the entity’s tax rate in Puerto Rico from 29.0% to 37.5%. The result of this change is primarily offset by available tax concessions in Puerto Rico. On December 8, 2025, the Government of Puerto Rico granted tax concessions to our subsidiaries which operate in Puerto Rico. We have recognized a corresponding deferred foreign tax benefit in 2025 of $14,377 as a result of the reduced tax rate. Significant components of our deferred tax assets and liabilities are as follows:
| As of December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Tax loss carryforwards | $ | 156,675 | $ | 140,665 | |||||||
| Other | 13,703 | 12,782 | |||||||||
| Deferred tax assets | 170,378 | 153,447 | |||||||||
| Valuation allowance | (170,378) | (152,676) | |||||||||
| Net deferred tax assets | $ | — | $ | 771 | |||||||
| Deferred tax liabilities: | |||||||||||
| Property basis difference | $ | (550) | $ | (7,754) | |||||||
| Puerto Rico deferred tax gain | (1,837) | (8,073) | |||||||||
| Other | — | (442) | |||||||||
| Net deferred tax liabilities | $ | (2,387) | $ | (16,269) | |||||||
Net deferred tax liabilities are included in accounts payable and other liabilities in our consolidated balance sheets.
At December 31, 2025 and 2024, our consolidated TRS had a net deferred tax asset, prior to any valuation allowance, of $157,819 and $141,642, respectively, which consists primarily of the tax benefit of net operating loss carryforwards and tax credits. Because of the uncertainty surrounding our ability to realize the future benefit, we have provided a 100% valuation allowance against certain deferred tax assets as of December 31, 2025 and 2024. As of December 31, 2025 and 2024, our consolidated TRS had net operating loss carryforwards for federal income tax purposes of approximately $631,360 and $556,778, respectively, which partially expire starting in 2030. At December 31, 2025 and 2024, we recorded a deferred tax liability of $1,837 and $8,073, respectively, as a result of the book value to tax basis difference related to the accounting of an insurance settlement in 2021.
At December 31, 2025 and 2024, we, excluding our subsidiaries, had net operating loss carryforwards for federal income tax purposes of approximately $791,654 and $579,886, respectively, of which certain losses incurred prior to 2018 partially expire starting in 2027.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 25, 2026 | Showing above |
| 2024 | Feb 26, 2025 | |
| 2023 | Feb 28, 2024 | |
| 2022 | Feb 28, 2023 | |
| 2021 | Feb 24, 2022 | |
| 2020 | Mar 1, 2021 | |
| 2019 | Mar 2, 2020 | |
| 2018 | Feb 27, 2019 | |
| 2017 | Mar 1, 2018 | |
| 2016 | Mar 1, 2017 | |
| 2015 | Feb 24, 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.