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Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Taxes [Abstract]  
Income Taxes
7.
Income Taxes

Due to the structure of MAA as a REIT and the nature of the operations of its operating properties, no provision for federal income taxes has been made at the MAA level. In addition, as MAALP is structured as a limited partnership, and its partners recognize their proportionate share of income or loss in their tax returns, no provision for federal income taxes has been made at the MAALP level. Historically, the Company has incurred certain state and local income, excise and franchise taxes.

Taxable REIT Subsidiaries

A TRS is an entity that is subject to federal, state and any applicable local corporate income tax without the benefit of the dividends paid deduction applicable to REITs. The Company’s TRSs generated taxable loss of $45.2 million for the year ended December 31, 2022 and taxable income of $51.8 million and $5.8 million for the years ended December 31, 2021 and 2020 and income tax benefit of $9.5 million for the year ended December 31, 2022 and income tax expense of $10.9 million and $0.8 million for the years ended December 31, 2021 and 2020. One of the Company’s TRSs generally provides the Company with services (property management services to a real estate joint venture and other services) for which the Company reimburses the TRS. In addition, one of the Company’s TRSs owns the investments in the technology-focused limited partnerships and marketable securities that generate investment income and losses. The investment income or loss is recognized for tax purposes at the time of sale or exchange of the investment.

In addition to the TRSs income tax provision, income tax expense primarily relates to the Texas-based margin tax for all Texas apartment communities. Income tax benefit for the Company for the year ended December 31, 2022 was $6.2 million and income tax expense for the years ended December 31, 2021 and 2020 was $13.6 million and $3.3 million, respectively, and is presented in “Income tax benefit (expense)” in the accompanying Consolidated Statements of Operations.

As of December 31, 2022 and 2021, the components of the Company’s TRSs deferred income tax assets and liabilities were as follows (dollars in thousands):

 

 

December 31, 2022

 

 

December 31, 2021

 

Deferred tax asset:

 

 

 

 

 

 

Other

 

$

—

 

 

$

328

 

 

 

 

 

 

 

 

Deferred tax liability:

 

 

 

 

 

 

Unrealized gain from limited partnerships

 

$

1,122

 

 

$

12,946

 

Unrealized gain from marketable securities & other

 

 

1,700

 

 

 

246

 

Total deferred tax liability

 

$

2,822

 

 

$

13,192

 

Net deferred tax liability

 

$

2,822

 

 

$

12,864

 

The net deferred tax liability balances are reflected in “Accrued expenses and other liabilities” in the accompanying Consolidated Balance Sheets for the years ended December 31, 2022 and 2021. The TRSs have no reserve for uncertain tax positions for the years ended December 31, 2022 and 2021, and management does not believe there will be any material changes in the TRSs unrecognized tax positions over the next 12 months. If necessary, the TRSs accrue interest and penalties on unrecognized tax benefits as a component of income tax expense.

Net Operating Loss Carryforwards

As of December 31, 2022, the Company held federal net operating loss, or NOL, carryforwards of $54.2 million for income tax purposes that expire in the years 2023 to 2032. Utilization of any NOL carryforwards is subject to an annual limitation due to ownership change limitations provided by Section 382 of the Code and similar state provisions. The annual limitations may result in the expiration of NOL carryforwards prior to utilization. The Company may use these NOLs to offset all or a portion of the taxable income generated at the REIT level. Tax years 2019 through 2022 are subject to examination by the Internal Revenue Service. No tax examination is currently in process.

Taxable Composition of Distributions

For income tax purposes, dividends paid to holders of common stock generally consist of ordinary income, return of capital, capital gains, qualified dividends and un-recaptured Section 1250 gains, or a combination thereof. For the years ended December 31, 2022, 2021 and 2020, dividends per share held for the entire year were estimated to be taxable as follows:

 

 

2022

 

 

2021

 

 

2020

 

 

 

Amount

 

 

Percentage

 

 

Amount

 

 

Percentage

 

 

Amount

 

 

Percentage

 

Ordinary income

 

$

4.44

 

 

 

95.03

%

 

$

2.43

 

 

 

59.18

%

 

$

4.00

 

 

 

99.98

%

Capital gains

 

 

0.23

 

 

 

4.78

%

 

 

1.36

 

 

 

33.15

%

 

 

0.00

 

 

 

0.02

%

Un-recaptured Section 1250 gains

 

 

0.01

 

 

 

0.19

%

 

 

0.31

 

 

 

7.67

%

 

 

0.00

 

 

 

0.00

%

Total

 

$

4.68

 

 

 

100

%

 

$

4.10

 

 

 

100

%

 

$

4.00

 

 

 

100

%

The Company designated the per share amounts above as capital gain dividends in accordance with the requirements of the Code. The difference between net income available to common shareholders for financial reporting purposes and taxable income before dividend deductions relates primarily to temporary differences such as depreciation and amortization and taxable gains on sold properties.