6. Income Taxes

We have maintained and intend to maintain our election as a REIT under the Internal Revenue Code of 1986, as amended. In order for us to continue to qualify as a REIT we must meet a number of organizational and operational requirements, including a requirement to distribute annual dividends to our shareholders equal to a minimum of 90% of our REIT taxable income, computed without regard to the dividends paid deduction and our net capital gains. As a REIT, we generally will not be subject to federal income tax on our taxable income at the corporate level to the extent such income is distributed to our shareholders annually. If our taxable income exceeds our dividends in a tax year, REIT tax rules allow us to designate dividends from the subsequent tax year in order to avoid current taxation on undistributed income. If we fail to qualify as a REIT in any taxable year, we will be subject to federal and state income taxes at regular corporate rates, including any applicable alternative minimum tax. In addition, we may not be able to requalify as a REIT for the four subsequent taxable years. Historically, we have incurred only state and local income, franchise, margin, and excise taxes. Taxable income from non-REIT activities managed through taxable REIT subsidiaries is subject to applicable federal, state, and local income and margin taxes. Our operating partnerships are flow-through entities and are not subject to federal income taxes at the entity level.

We have recorded income, franchise, and excise taxes in the consolidated statements of income and comprehensive income for the years ended December 31, 2014, 2013 and 2012 as income tax expense. Income taxes for the years ended December 31, 2014, 2013 and 2012, primarily related to state income tax and federal taxes on certain of our taxable REIT subsidiaries. We have no significant temporary or permanent differences or tax credits associated with our taxable REIT subsidiaries.

The reconciliation of net income to REIT taxable income is set forth in the following table:



	Year Ended December 31,
(in thousands)	2014				2013				2012
Net income attributable to common shareholders	$	292,089			$	336,364			$	283,390
(Income) loss from taxable REIT subsidiaries included above	(1,523		)		(2,940		)		3,323
Net income from REIT operations	$	290,566			$	333,424			$	286,713
Book depreciation and amortization, including discontinued operations	238,989				223,198				213,479
Tax depreciation and amortization	(200,153		)		(204,059		)		(171,060		)
Book/tax difference on gains/losses from capital transactions	(35,635		)		(86,358		)		(63,832		)
Other book/tax differences, net	8,805				(9,427		)		(40,961		)
REIT taxable income	$	302,572			$	256,778			$	224,339
Dividends paid deduction	(302,572		)	(1)	(256,778		)	(2)	(224,339		)	(3)
Dividends paid in excess of taxable income	$	—			$	—			$	—

(1) The dividends paid deduction includes estimated designated dividends from 2015 of approximately $84.0 million.

(2) We borrowed approximately $5.1 million from 2014 for designated dividends in 2013.

(3) We borrowed approximately $26.6 million from 2013 for designated dividends in 2012.

A schedule of per share distributions we paid and reported to our shareholders is set forth in the following table:



	Year Ended December 31,
	2014			2013			2012
Common Share Distributions
Ordinary income	$	1.23		$	1.40		$	0.96
Long-term capital gain	1.02			0.76			0.64
Unrecaptured Sec. 1250 gain	0.39			0.36			0.64
Total	$	2.64		$	2.52		$	2.24
Percentage of distributions representing tax preference items	4.17		%	4.95		%	5.72		%

We have taxable REIT subsidiaries which are subject to federal and state income taxes. At December 31, 2014, our taxable REIT subsidiaries had net operating loss carryforwards (“NOL’s”) of approximately $21.5 million which expire in years 2030 to 2034. Because NOL’s are subject to certain change of ownership, continuity of business, and separate return year limitations, and because we believe it is unlikely the available NOL’s will be utilized or if utilized, any amounts will be immaterial, no benefits related to these NOL’s have been recognized in our consolidated financial statements.

The carrying value of net assets reported in our consolidated financial statements at December 31, 2014 exceeded the tax basis by approximately $1.2 billion.

Income Tax Expense. For the tax years ended December 31, 2014, 2013, and 2012, we had income tax expense of approximately $1.9 million, $1.8 million, and $1.2 million, respectively. Income tax for the year ended December 31, 2014, 2013, and 2012 was comprised mainly of state income tax, and federal income tax related to one of our taxable REIT subsidiaries.

Income Tax Expense – Deferred. For the years ended December 31, 2014, 2013, and 2012, our deferred tax expense was not significant.

The Company and its subsidiaries’ income tax returns are subject to examination by federal, state and local tax jurisdictions for years 2011 through 2013. Net income tax loss carry forwards and other tax attributes generated in years prior to 2011 are also subject to challenge in any examination of those tax years. We believe we have no uncertain tax positions or unrecognized tax benefits requiring disclosure as of and for the periods presented.