Income Taxes

12 Months Ended

Dec. 31, 2020

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 adjusted taxable income. 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 may be subject to federal and state income taxes for such year. In addition, we may not be able to requalify as a REIT for the four subsequent taxable years and may be subject to federal and state income taxes in those years as well. Historically, we have incurred only state and local income, franchise, and excise taxes. Taxable income from non-REIT activities managed through taxable REIT subsidiaries is subject to applicable federal, state, and local income 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, 2020, 2019 and 2018 as income tax expense. Income taxes for the years ended December 31, 2020, 2019 and 2018, 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.

For income tax purposes, distributions to common shareholders are characterized as ordinary income, capital gains, or return of capital. A summary of the income tax characterization of our distributions paid per common share for the years ended December 31, 2020, 2019 and 2018 is set forth in the following table:


	Year Ended December 31,
	2020		2019		2018
Common Share Distributions
Ordinary income	$	3.22	$	2.53	$	2.99
Long-term capital gain	0.04		0.46		0.09
Return of capital	0.06		—		—
Unrecaptured Sec. 1250 gain	—		0.21		—
Total	$	3.32	$	3.20	$	3.08

We have taxable REIT subsidiaries which are subject to federal and state income taxes. At December 31, 2020, our taxable REIT subsidiaries had immaterial net operating loss carryforwards (“NOL’s”) related to 2017 and prior which expire in years 2034 to 2037 and no material benefits related to these NOL’s have been recognized in our consolidated financial statements. In accordance with the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act") which was enacted in March 2020, 100% of NOL's are allowed to offset taxes in 2020, however, usage of any NOLs during 2021 and thereafter is limited to 80% of that year's taxable income. No material benefits related to NOLs were recognized in our 2020 consolidated financial statements.

The carrying value of net assets reported in our consolidated financial statements at December 31, 2020 exceeded the tax basis by approximately $1.4 billion.

Income Tax Expense. We had income tax expense of approximately $2.0 million, $1.1 million and $1.4 million for the tax years ended December 31, 2020, 2019 and 2018, respectively, which 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, 2020, 2019, and 2018, our deferred tax expense was not significant.

The income tax returns of Camden Property Trust and its subsidiaries are subject to examination by federal, state and local tax jurisdictions for years 2017 through 2019. Tax attributes generated in years prior to 2017 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.

The CARES Act was intended to support the economy during COVID-19 with technical corrections, or temporary modifications, to certain of the provisions of the Tax Cut and Jobs Act. These changes did not have a material impact on our consolidated financial statements.

- 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.

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