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Income Taxes | 6 Months Ended
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May 31, 2025
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes Income Tax Expense. Our income tax expense and effective tax rates were as follows (dollars in thousands):
| Three Months Ended May 31, |  | Six Months Ended May 31,
| 2025 |  | 2024 |  | 2025 |  | 2024
Income tax expense | $ | 34,500 |  |  | $ | 52,700 |  |  | $ | 64,300 |  |  | $ | 88,700 |
Effective tax rate | 24.2 | % |  | 23.8 | % |  | 22.8 | % |  | 22.4 | %
Our income tax expense and effective tax rate for the three months ended May 31, 2025 included the favorable impact of $3.1 million of Internal Revenue Code Section 45L (“Section 45L”) tax credits we recognized primarily from building energy-efficient homes, partly offset by $2.8 million of non-deductible executive compensation expense. Our income tax expense and effective tax rate for the three months ended May 31, 2024 reflected the favorable impact of $4.8 million of Section 45L tax credits and $.4 million of excess tax benefits related to stock-based compensation, partly offset by $3.0 million of non-deductible executive compensation expense. For the six months ended May 31, 2025, our income tax expense and effective tax rate included the favorable impacts of $5.4 million of excess tax benefits related to stock-based compensation and $4.8 million of Section 45L tax credits, partly offset by $5.2 million of non-deductible executive compensation expense. Our income tax expense and effective tax rate for the six months ended May 31, 2024 reflected the favorable impacts of $8.9 million of Section 45L tax credits and $6.5 million of excess tax benefits related to stock-based compensation, partly offset by $5.5 million of non-deductible executive compensation expense. The year-over-year decreases in Section 45L tax credits for the three months and six months ended May 31, 2025 reflect the impact of guidance the Internal Revenue Service (“IRS”) issued in 2023 that heightened the Section 45L energy-efficiency qualification standard for homes built in California relative to other states and our decision to build homes in many of our markets beginning in 2025 that are highly energy efficient and qualify for ENERGY STAR® certification but do not qualify for Section 45L tax credits. We believe the additional costs necessary to satisfy the higher standards for some of our homes outweigh the possible benefits of meeting those higher standards for both our business and our buyers. Deferred Tax Asset Valuation Allowance. We evaluate our deferred tax assets quarterly to determine if adjustments to our valuation allowance are required based on the consideration of all available positive and negative evidence using a “more likely than not” standard with respect to whether deferred tax assets will be realized. Our evaluation considers, among other factors, our historical operating results, our expectation of future profitability, the duration of the applicable statutory carryforward periods, and conditions in the housing market and the broader economy. The ultimate realization of our deferred tax assets depends primarily on our ability to generate future taxable income during the periods in which the related deferred tax assets become deductible. The value of our deferred tax assets depends on applicable income tax rates. As of both May 31, 2025 and November 30, 2024, we had deferred tax assets of $119.2 million that were partly offset by valuation allowances of $16.8 million. The deferred tax asset valuation allowances at May 31, 2025 and November 30, 2024 were primarily related to certain state net operating losses that had not met the “more likely than not” realization standard at those dates. Based on the evaluation of our deferred tax assets as of May 31, 2025, we determined that most of our deferred tax assets would be realized. Therefore, no adjustments to our deferred tax asset valuation allowance were needed for the six months ended May 31, 2025. We will continue to evaluate both the positive and negative evidence on a quarterly basis in determining the need for a valuation allowance with respect to our deferred tax assets. The accounting for deferred tax assets is based upon estimates of future results. Changes in positive and negative evidence, including differences between estimated and actual results, could result in changes in the valuation of our deferred tax assets that could have a material impact on our consolidated financial statements. Changes in existing federal and state tax laws and corporate income tax rates could also affect actual tax results and the realization of deferred tax assets over time.

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