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Income Taxes | 12 Months Ended
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Sep. 30, 2020
Income Tax Disclosure [Abstract] |
Income Taxes | INCOME TAXES Income Tax Expense The components of the Company’s income tax expense are as follows:
| Year Ended September 30,
| 2020 |  | 2019 |  | 2018
| (In millions)
Current tax expense: |  |  |  |  |
Federal | $ | 484.0 |  |  | $ | 407.3 |  |  | $ | 373.2 |
State | 104.4 |  |  | 79.3 |  |  | 53.6 |
| 588.4 |  |  | 486.6 |  |  | 426.8 |
Deferred tax expense (benefit): |  |  |  |  |
Federal | 20.0 |  |  | 13.9 |  |  | 158.7 |
State | (5.9) |  |  | 6.2 |  |  | 12.2 |
| 14.1 |  |  | 20.1 |  |  | 170.9 |
Total income tax expense | $ | 602.5 |  |  | $ | 506.7 |  |  | $ | 597.7 |
The Company’s effective tax rate was 20.2%, 23.8% and 29.0% in fiscal 2020, 2019 and 2018, respectively. The effective tax rate for fiscal 2020 includes a tax benefit of $93.4 million from the enactment of the Taxpayer Certainty and Disaster Tax Relief Act of 2019 (the Act). The Act retroactively reinstated the federal energy efficient homes tax credit that expired on December 31, 2017 to homes closed from January 1, 2018 to December 31, 2020. The effective tax rate for fiscal 2020 also includes a tax benefit of $11.2 million related to the release of a valuation allowance against the Company’s state deferred tax assets. The effective tax rates for all years include an expense for state income taxes, reduced by tax benefits related to stock-based compensation. The effective tax rate for fiscal 2018 included the remeasurement of the Company’s deferred tax assets and liabilities as a result of the Tax Cuts and Jobs Act which, among other items, reduced the federal corporate tax rate from 35% to 21% and repealed the domestic production activities deduction effective for the Company beginning October 1, 2018. For fiscal year companies, the change in law required an application of a blended tax rate in the year of change, which for the Company was 24.5% for fiscal 2018. The effective tax rate for fiscal 2018 also included a tax benefit related to the retroactive reinstatement of the federal energy efficient homes tax credit to homes closed through December 31, 2017 and the release of a valuation allowance against deferred tax assets related to Forestar. Reconciliation of Expected Income Tax Expense Differences between income tax expense and tax computed by applying the federal statutory rate of 21% in fiscal 2020 and 2019, and 24.5% in fiscal 2018 to income before income taxes during each year is due to the following:
| Year Ended September 30,
| 2020 |  | 2019 |  | 2018
| (In millions)
Income taxes at federal statutory rate | $ | 626.4 |  |  | $ | 446.3 |  |  | $ | 505.0 |
Increase (decrease) in tax resulting from: |  |  |  |  |
State income taxes, net of federal benefit | 79.1 |  |  | 69.1 |  |  | 59.4 |
Domestic production activities deduction | — |  |  | — |  |  | (36.7) |
Valuation allowance | (11.2) |  |  | (0.2) |  |  | (7.3) |
Tax credits | (93.4) |  |  | (1.6) |  |  | (19.0) |
Excess tax benefit from stock-based compensation | (22.3) |  |  | (16.1) |  |  | (21.2) |
Tax law change | — |  |  | — |  |  | 108.7 |
Tax contingencies | 8.9 |  |  | — |  |  | — |
Other | 15.0 |  |  | 9.2 |  |  | 8.8 |
Total income tax expense | $ | 602.5 |  |  | $ | 506.7 |  |  | $ | 597.7 |
Deferred Income Taxes Deferred tax assets and liabilities reflect the tax consequences of temporary differences between the financial statement bases of assets and liabilities and their tax bases, tax losses and credit carryforwards. Components of deferred income taxes are summarized as follows:
| September 30,
| 2020 |  | 2019
| (In millions)
Deferred tax assets: |  |  |
Inventory costs | $ | 37.6 |  |  | $ | 39.8 |
Inventory impairments | 21.5 |  |  | 27.9 |
Warranty and construction defect costs | 156.7 |  |  | 135.1 |
Net operating loss carryforwards | 17.5 |  |  | 31.5 |
Tax credit carryforwards | 2.1 |  |  | 3.5 |
Incentive compensation plans | 68.3 |  |  | 65.1 |
Other | 15.6 |  |  | 7.2 |
Total deferred tax assets | 319.3 |  |  | 310.1 |
Valuation allowance | (7.5) |  |  | (18.7) |
Total deferred tax assets, net of valuation allowance | $ | 311.8 |  |  | $ | 291.4 |
Deferred tax liabilities: |  |  |
Deferral of profit on home closings | 131.9 |  |  | 95.4 |
Depreciation of fixed assets | 19.0 |  |  | 14.2 |
Other | 16.0 |  |  | 18.7 |
Total deferred tax liabilities | $ | 166.9 |  |  | $ | 128.3 |
Deferred income taxes, net | $ | 144.9 |  |  | $ | 163.1 |
D.R. Horton has $15.8 million of tax benefits for state net operating loss (NOL) carryforwards that expire at various times depending on the tax jurisdiction. Of the total amount, $5.4 million of the tax benefits expire over the next ten years and the remaining $10.4 million expires from fiscal years 2031 to 2040. Forestar has $1.7 million of tax benefits for state NOL carryforwards that expire at various times depending on the tax jurisdiction. The accounting for deferred taxes is based upon estimates of future results. Differences between the anticipated and actual outcomes of these future results could have a material impact on the Company’s consolidated results of operations or financial position. Also, changes in existing federal and state tax laws and tax rates could affect future tax results and the valuation of the Company’s deferred tax assets. Valuation Allowance The Company has a valuation allowance of $7.5 million and $18.7 million at September 30, 2020 and 2019, respectively, related to state deferred tax assets for NOL carryforwards that are more likely than not to expire before being realized. The decrease in the valuation allowance is primarily attributable to the Company’s determination that it will have sufficient future taxable income in certain state tax jurisdictions to realize a portion of the state NOL carryforwards. The Company will continue to evaluate both the positive and negative evidence in determining the need for a valuation allowance with respect to the remaining state NOL carryforwards. Any reversal of the valuation allowance in future periods will impact the Company’s effective tax rate. Unrecognized Tax Benefits Unrecognized tax benefits are the differences between tax positions taken or expected to be taken in a tax return and the benefits recognized in the financial statements. A reconciliation of the beginning and ending amounts of unrecognized tax benefits for fiscal 2020 is as follows.
| Year Ended September 30, 2020
| (In millions)
Unrecognized tax benefits, beginning of year | $ | — |
Additions attributable to tax positions taken in the current year | 8.9 |
Additions attributable to tax positions taken in prior years | — |
Settlements | — |
Unrecognized tax benefits, end of year | $ | 8.9 |
The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate is $8.9 million. The Company had no accrued interest or penalties related to unrecognized tax benefits at September 30, 2020. The Company classifies interest expense and penalties on income taxes as income tax expense. Regulations and Legislation D.R. Horton is subject to federal income tax and state income tax in multiple jurisdictions. The statute of limitations for D.R. Horton’s major tax jurisdictions remains open for examination for fiscal years 2017 through 2020. D.R. Horton is not currently under audit for federal income tax, but is under audit by various states. The Company is not aware of any significant findings by the state taxing authorities. Forestar is subject to federal income tax and state income tax in multiple jurisdictions. The statute of limitations for Forestar’s major tax jurisdictions remains open for examination for tax years 2016 through 2020. Forestar is not currently under audit for federal or state income taxes.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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