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Taxes | 12 Months Ended
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Dec. 31, 2021
Income Tax Disclosure [Abstract] |
Taxes | Taxes Components of our net deferred tax assets at December 31, 2021 and 2020 are presented in the following table. Table 22.1 – Deferred Tax Assets (Liabilities)
(In Thousands) |  | December 31, 2021 |  | December 31, 2020
Deferred Tax Assets |  |  |  |
Net operating loss carryforward – state |  | $ | 98,011 |  |  | $ | 103,334 |
Net capital loss carryforward – state |  | 18,082 |  |  | 23,487 |
Net operating loss carryforward – federal |  | 82 |  |  | 82 |
Real estate assets |  | 1,347 |  |  | 2,948 |
Allowances and accruals |  | 3,528 |  |  | 3,324 |
Goodwill and intangible assets |  | 24,973 |  |  | 23,231 |
Other |  | 3,016 |  |  | 1,914 |
Tax effect of unrealized (gains) / losses - OCI |  | (21) |  |  | 124 |
Total Deferred Tax Assets |  | 149,018 |  |  | 158,444 |
Deferred Tax Liabilities |  |  |  |
Mortgage Servicing Rights |  | (3,617) |  |  | (2,458) |
Interest rate agreements |  | (3,324) |  |  | (3,867) |
Total Deferred Tax Liabilities |  | (6,941) |  |  | (6,325) |
Valuation allowance |  | (121,210) |  |  | (151,248) |
Total Deferred Tax Asset (Liability), net of Valuation Allowance |  | $ | 20,867 |  |  | $ | 871 |
The deferred tax assets and liabilities reported above, with the exception of the state net operating loss ("NOL") and capital loss carryforwards, relate solely to our TRS. For state purposes, the REIT files a unitary combined return with its TRS. Because the REIT may have state taxable income apportioned to it from the activity of its TRS, we report the entire combined unitary state NOL and capital loss carryforwards as deferred tax assets, including the carryforwards allocated to the REIT. Realization of our deferred tax assets ("DTAs") at December 31, 2021, is dependent on many factors, including generating sufficient taxable income prior to the expiration of NOL carryforwards and generating sufficient capital gains in future periods prior to the expiration of capital loss carryforwards. We determine the extent to which realization of the deferred assets is not assured and establish a valuation allowance accordingly. For the year ended December 31, 2021, we reassessed the valuation allowance on our deferred tax assets ("DTAs") noting an increase in positive evidence related to our ability to utilize certain DTAs. The positive evidence includes significant revenue growth in recent quarters and expectations regarding future profitability at our TRS. After assessing both the positive and negative evidence, we determined it was more likely than not that we will realize all of our federal DTAs. Therefore, we reversed our federal valuation allowance of $17 million as a discrete benefit in the third quarter of 2021. In addition to the federal valuation allowance release, we determined it was more likely than not that we will realize a portion of our state DTAs and, as such, reversed $3 million of state valuation allowance as a discrete item in the third quarter of 2021. Consistent with prior periods, we continued to maintain a valuation allowance against the majority of our net state DTAs as we remained uncertain about our ability to generate sufficient income in future periods needed to utilize net state DTAs beyond the reversal of our state DTLs. We reported net federal ordinary and capital DTAs at December 31, 2020, and as a result of GAAP losses at our TRS in 2020, a valuation allowance was recorded against our net federal ordinary DTAs. However, no valuation allowance was recorded against our net federal capital DTAs as we expected to utilize these DTAs due to our ability to recognize capital losses and carry them back to prior years. Consistent with prior periods, at December 31, 2020, we maintained a valuation allowance against our net state DTAs as we remained uncertain about our ability to generate sufficient income in future periods needed to utilize net state DTAs beyond the reversal of our state DTLs. Our estimate of net deferred tax assets could change in future periods to the extent that actual or revised estimates of future taxable income during the carryforward periods change from current expectations. We assessed our tax positions for all open tax years (i.e., Federal, 2018 to 2021, and State, 2017 to 2021) and, at December 31, 2021 and 2020, concluded that we had no uncertain tax positions that resulted in material unrecognized tax benefits. At December 31, 2021, our federal NOL carryforward at the REIT was $37 million, of which $29 million will expire in 2029 and $9 million will carry forward indefinitely. In order to utilize NOLs at the REIT, taxable income must exceed dividend distributions. At December 31, 2021, our taxable REIT subsidiaries had $0.4 million of federal NOLs, of which $0.2 million will expire beginning in 2035 and $0.2 million will carry forward indefinitely. Redwood and its taxable REIT subsidiaries accumulated an estimated state NOL of $1.14 billion at December 31, 2021. These NOLs expire beginning in 2032. If certain substantial changes in the Company’s ownership occur, there could be an annual limitation on the amount of the carryforwards that can be utilized. The following table summarizes the provision for income taxes for the years ended December 31, 2021, 2020, and 2019. Table 22.2 – Provision for Income Taxes
|  | Years Ended December 31,
(In Thousands) |  | 2021 |  | 2020 |  | 2019
Current Provision for Income Taxes |  |  |  |  |  |
Federal |  | $ | 28,718 |  |  | $ | 1,598 |  |  | $ | 12,036 |
State |  | 9,859 |  |  | (182) |  |  | 897 |
Total Current Provision for Income Taxes |  | 38,577 |  |  | 1,416 |  |  | 12,933 |
Deferred (Benefit) Provision for Income Taxes |  |  |  |  |  |
Federal |  | (17,172) |  |  | (6,024) |  |  | (3,976) |
State |  | (2,927) |  |  | — |  |  | (1,517) |
Total Deferred (Benefit) Provision for Income Taxes |  | (20,099) |  |  | (6,024) |  |  | (5,493) |
Total Provision (Benefit From) for Income Taxes |  | $ | 18,478 |  |  | $ | (4,608) |  |  | $ | 7,440 |
The following is a reconciliation of the statutory federal and state tax rates to our effective tax rate at December 31, 2021, 2020, and 2019. Table 22.3 – Reconciliation of Statutory Tax Rate to Effective Tax Rate
|  | December 31, 2021 |  | December 31, 2020 |  | December 31, 2019
Federal statutory rate |  | 21.0 | % |  | 21.0 | % |  | 21.0 | %
State statutory rate, net of Federal tax effect |  | 8.6 | % |  | 8.6 | % |  | 8.6 | %
Differences in taxable (loss) income from GAAP income |  | (8.0) | % |  | (19.6) | % |  | (2.1) | %
Change in valuation allowance |  | (8.9) | % |  | (9.2) | % |  | (2.2) | %
Dividends paid deduction (1) |  | (7.2) | % |  | — | % |  | (21.1) | %
Effective Tax Rate |  | 5.5 | % |  | 0.8 | % |  | 4.2 | %
(1)The dividends paid deduction in the effective tax rate reconciliation is generally representative of the amount of distributions to shareholders that reduce REIT taxable income. For the year ended December 31, 2020, the dividends paid deduction is 0% due to our REIT incurring a taxable loss during the period; therefore, there was no REIT taxable income available to apply against the dividends paid. We believe that we have met all requirements for qualification as a REIT for federal income tax purposes. Many requirements for qualification as a REIT are complex and require analysis of particular facts and circumstances. Often there is only limited judicial or administrative interpretive guidance and as such there can be no assurance that the Internal Revenue Service or courts would agree with our various tax positions. If we were to fail to meet all the requirements for qualification as a REIT and the requirements for statutory relief, we would be subject to federal corporate income tax on our taxable income and we would not be able to elect to be taxed as a REIT for four years thereafter. Such an outcome could have a material adverse impact on our consolidated financial statements.

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