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INCOME TAXES | 12 Months Ended
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Dec. 31, 2019
Income Tax Disclosure [Abstract] |
INCOME TAXES | INCOME TAXES Components of income tax expense are as follows (in thousands):
|  | Years Ended December 31, |  |  |  |
|  | 2019 |  | 2018 |  | 2017
Current taxes: |  |  |  |  |  |
Federal |  | $ | 41,019 |  |  | $ | 37,926 |  |  | $ | 76,988 |
State |  | 11,644 |  |  | 9,162 |  |  | 8,006 |
|  | 52,663 |  |  | 47,088 |  |  | 84,994 |
Deferred taxes: |  |  |  |  |  |
Federal |  | (8) |  |  | 6,687 |  |  | 18,916 |
State |  | 627 |  |  | 2,147 |  |  | 354 |
|  | 619 |  |  | 8,834 |  |  | 19,270 |
Total |  | $ | 53,282 |  |  | $ | 55,922 |  |  | $ | 104,264 |
Income taxes differ for the years ended December 31, 2019, 2018 and 2017, from the amounts computed using the expected federal statutory income tax rate of 21%, 21% and 35%, respectively, as a result of the following (in thousands):
|  | Years Ended December 31, |  |  |  |
|  | 2019 |  | 2018 |  | 2017
Expected taxes at current federal statutory income tax rate |  | $ | 63,618 |  |  | $ | 59,483 |  |  | $ | 86,632 |
State income taxes, net of federal tax benefit |  | 9,999 |  |  | 8,934 |  |  | 5,434 |
Tax Act revaluation of deferred tax balances |  | — |  |  | (2,741) |  |  | 19,687 |
Manufacturing deduction |  | — |  |  | — |  |  | (7,580) |
Federal tax credits |  | (20,582) |  |  | (10,330) |  |  | (484) |
Non-deductible costs and other |  | 247 |  |  | 576 |  |  | 575 |
Income tax expense |  | $ | 53,282 |  |  | $ | 55,922 |  |  | $ | 104,264 |
The effective tax rate was 17.6%, 19.7%, and 42.1% for 2019, 2018 and 2017, respectively. The reduced rates in 2019 and 2018 are due to lower corporate tax rates under tax reform, extension of the Internal Revenue Code §45L new energy efficient homes credit for homes closed in 2019 and 2018, and additional energy tax credits obtained by qualifying more homes in open prior tax years. In 2018 there was also a favorable revaluation adjustment to our deferred tax assets in accordance with the SEC Staff Accounting Bulletin No. 118, based on completion of our 2017 tax returns in 2018. The 2017 effective tax rate does not include the benefit of 2017 energy tax credits due to the legislation being passed in 2018, but does include additional energy tax credits obtained by qualifying more homes from prior open tax years. The 2017 effective tax rate was reduced by the homebuilder manufacturing deduction which was eliminated in tax reform. The 2017 effective tax rate was higher due to a revaluation adjustment to our deferred tax assets as a result of tax reform which was estimated at that time and revised in 2018 when our accounting for the income tax effects of tax reform was completed. Deferred tax assets and liabilities are netted on our balance sheet by tax jurisdiction. Net overall tax assets for all jurisdictions are grouped and included as a separate asset. Net overall deferred tax liabilities for all jurisdictions are grouped and included in Accrued liabilities. At December 31, 2019, we have a net deferred tax asset of $25.9 million. We also have net deferred tax liabilities of $4.4 million. Deferred tax assets and liabilities are comprised of timing differences (in thousands) as follows:
|  | At December 31, |  |
|  | 2019 |  | 2018
Deferred tax assets: |  |  |  |
Real estate |  | $ | 12,090 |  |  | $ | 11,053 |
Goodwill |  | — |  |  | 862 |
Warranty reserve |  | 5,190 |  |  | 5,824 |
Wages payable |  | 6,429 |  |  | 4,908 |
Equity-based compensation |  | 5,991 |  |  | 5,153 |
Accrued expenses |  | 75 |  |  | 104 |
Net operating loss carry-forwards |  | 752 |  |  | 1,005 |
Other |  | 4,488 |  |  | 4,946 |
Total deferred tax assets |  | 35,015 |  |  | 33,855 |
Deferred tax liabilities: |  |  |  |
Goodwill |  | 3 |  |  | — |
Prepaids |  | 2,113 |  |  | 1,409 |
Fixed assets |  | 6,982 |  |  | 5,981 |
Total deferred tax liabilities |  | 9,098 |  |  | 7,390 |
Deferred tax assets, net |  | 25,917 |  |  | 26,465 |
Other deferred tax liability - state franchise taxes |  | 4,449 |  |  | 4,378 |
Net deferred tax assets and liabilities |  | $ | 21,468 |  |  | $ | 22,087 |
At December 31, 2019 and December 31, 2018, we have no unrecognized tax benefits. We believe that our current income tax filing positions and deductions will be sustained on audit and do not anticipate any adjustments that will result in a material change. Our policy is to accrue interest and penalties on unrecognized tax benefits and include them in federal income tax expense. We determine our deferred tax assets and liabilities in accordance with ASC 740, Income Taxes ("ASC 740"). We evaluate our deferred tax assets, including the benefit from net operating losses ("NOLs"), by jurisdiction to determine if a valuation allowance is required. Companies must assess whether a valuation allowance should be established based on the consideration of all available evidence using a “more likely than not” standard with significant weight being given to evidence that can be objectively verified. This assessment considers, among other matters, the nature, frequency and severity of cumulative losses, forecasts of future profitability, the length of statutory carryforward periods, experiences with operating losses and experiences of utilizing tax credit carryforwards and tax planning alternatives. We have no valuation allowance on our deferred tax assets and NOL carryovers at December 31, 2019. On December 22, 2017, the President signed into law the Tax Cuts and Jobs Act ("Tax Act"). Under ASC 740, the effects of new legislation are recognized in the period that includes the date of enactment. The estimated impact on 2017 was to reduce the value of our deferred tax asset by $19.7 million, which is reflected in our effective tax rate reconciliation. This impact was our most reasonable estimate at that time based on our understanding of the Tax Act as it applied to our business and changed as more information became available. At December 31, 2018, we had completed our accounting for the income tax effects of the Tax Act on our deferred tax assets. In accordance with SEC Staff Accounting Bulletin No. 118 and ASC 740, we revised the valuation of our 2017 deferred tax assets for the impact of the Tax Act based on completion of our 2017 income tax returns. Accordingly, in 2018 we recorded a favorable revaluation adjustment of $2.7 million which was also reflected in our effective tax rate reconciliation. On February 9, 2018, the bipartisan Budget Act of 2018 was enacted and extended the availability for the IRC §45L new energy efficient homes credit to the end of 2017. In accordance with ASC 740, we recognized a tax benefit of $8.1 million in 2018 for qualifying new homes closed in 2017. The tax effected benefit is reflected in our effective tax rate reconciliation as the benefit from federal tax credits. In December of 2019, Congress passed the Taxpayer Certainty and Disaster Tax Relief Act of 2019 as a part of the Further Consolidated Appropriations Act, 2020 (the 2020 "Act") which the President signed into law on December 20, 2019. The 2020 Act further extended the availability of the IRC §45L new energy efficient homes credit through the end of 2020. Under ASC 740, the effects of the new legislation are recognized in the period that includes the date of enactment, regardless of the retroactive benefit. In accordance with this guidance, we recorded a tax benefit of $19.9 million based on our estimate for qualifying new energy efficient homes that we closed in 2018 and 2019. The estimated tax effected benefit is reflected in our effective tax rate reconciliation as the benefit from federal tax credits. Our future NOL and deferred tax asset realization depends on sufficient taxable income in the carryforward periods under existing tax laws. Federal NOL carryforwards may be used to offset future taxable income for 20 years. State NOL carryforwards may be used to offset future taxable income for a period of time ranging from 5 to 20 years, depending on the state jurisdiction. At December 31, 2019, we had no remaining un-utilized federal NOL carryforward or federal tax credits. At December 31, 2019, we had tax benefits for state NOL carryforwards of $0.8 million that begin to expire in 2028. At December 31, 2019, we have a current tax receivable of $14.4 million, which primarily consists of current federal and state tax accruals, net of estimated tax payments and energy tax credits. This amount is recorded in Other Receivables in the accompanying balance sheet at December 31, 2019. We conduct business and are subject to tax in the U.S. and several states. With few exceptions, we are no longer subject to U.S. federal, state, or local income tax examinations by taxing authorities for years prior to 2015. We have one state income tax examination covering various years pending resolution at this time. The tax benefits from NOLs, built-in losses, and tax credits would be materially reduced or potentially eliminated if we experience an “ownership change” as defined under Internal Revenue Code (“IRC”) §382. Based on our analysis performed as of December 31, 2019 we do not believe that we have experienced an ownership change. As a protective measure, our stockholders held a Special Meeting of Stockholders on February 16, 2009 and approved an amendment to our Articles of Incorporation that restricts certain transfers of our common stock. The amendment is intended to help us avoid an unintended ownership change and thereby preserve the value of any tax benefit for future utilization.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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