XML 46 R27.htm IDEA: XBRL DOCUMENT v3.24.0.1
Income Taxes
 12 Months Ended
Dec. 31, 2023
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
For U.S. federal income tax purposes, we elected to be taxed as a REIT under the Code. To qualify as a REIT, we must meet certain organizational and operational stipulations, including a requirement that we distribute at least 90% of our REIT taxable income, excluding net capital gains, to our stockholders. We currently intend to adhere to these requirements and maintain our REIT status. If we fail to qualify as a REIT in any taxable year, we will be subject to U.S. federal income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not qualify as a REIT for four subsequent taxable years. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes as well as to federal income and excise taxes on our undistributed taxable income.
At December 31, 2023, 15 of our hotel properties were leased to TRS lessees and The Ritz-Carlton St. Thomas was owned by our USVI TRS. The TRS entities recognized net book income (loss) before income taxes of $17.9 million, $25.4 million and $12.6 million for the years ended December 31, 2023, 2022 and 2021, respectively.
The following table reconciles the income tax expense at statutory rates to the actual income tax expense recorded (in thousands):
Year Ended December 31,
202320222021
Income tax (expense) benefit at federal statutory income tax rate of 21% $(5,180)$(6,463)$(2,652)
State income tax (expense) benefit, net of U.S. federal income tax benefit(258)(1,961)574 
State and local income tax (expense) benefit on pass-through entity subsidiaries(20)(17)(9)
Gross receipts and margin taxes(52)(69)(26)
Benefit of USVI Economic Development Commission credit1,511 3,358 3,346 
Benefits of Puerto Rico tax incentives2,064 1,474 — 
Effect of permanent differences
(229)— — 
Other(46)126 (251)
Valuation allowance(479)(491)(2,306)
Total income tax (expense) benefit$(2,689)$(4,043)$(1,324)
The components of income tax expense are as follows (in thousands):
Year Ended December 31,
202320222021
Current:
Federal$(467)$(3,745)$(1,477)
State(69)(247)(21)
Foreign(824)— — 
Total current income tax (expense) benefit(1,360)(3,992)(1,498)
Deferred:
Federal(14)(51)131 
State— — 43 
Foreign(1,315)— — 
Total deferred income tax (expense) benefit(1,329)(51)174 
Total income tax (expense) benefit$(2,689)$(4,043)$(1,324)
The following table presents the U.S. and foreign earnings (losses) from continuing operations before income taxes (in thousands):
Year Ended December 31,
202320222021
U.S.
$(51,878)$(3,859)$(47,986)
Foreign
23,939 27,250 16,399 
Total
$(27,939)$23,391 $(31,587)
For the years ended December 31, 2023, 2022 and 2021, income tax expense included interest and penalties paid to/(received from) taxing authorities of $(11,000), $1,000 and $3,000, respectively. At December 31, 2023 and 2022, we determined that there were no amounts to accrue for interest and penalties due to taxing authorities.
At December 31, 2023 and 2022, our deferred tax asset (liability) and related valuation allowance consisted of the following (in thousands):
December 31,
20232022
Deferred tax assets:
Tax intangibles basis greater than book basis$722 $722 
Allowance for doubtful accounts50 76 
Unearned income2,768 2,769 
Federal and state net operating losses15,967 16,452 
Capital loss carryforward511 525 
Accrued expenses761 1,133 
Other7 4 
Total deferred tax asset
20,786 21,681 
Valuation allowance(16,169)(18,627)
Net deferred tax asset
$4,617 $3,054 
Deferred tax liabilities:
Other
$(6)$(52)
Tax property basis greater/(less) than book basis
(5,932)(2,935)
Prepaid expenses— (59)
Total deferred tax liability
(5,938)(3,046)
Net deferred tax asset (liability)$(1,321)$8 
At December 31, 2023 and 2022, we have reserved certain deferred tax assets of our TRS entities and recorded a valuation allowance of $16.2 million and $18.6 million, respectively. Primarily as a result of the limitation imposed by the Code on the utilization of net operating losses of acquired subsidiaries, we believe it is more likely than not that a portion of our deferred tax assets will not be realized, and therefore, have provided a valuation allowance to reserve against the balances.
At December 31, 2023, we had TRS net operating loss carryforwards for U.S. federal income tax purposes of $63.6 million, of which $47.3 million is subject to expiration and will begin to expire in 2024. The remainder was generated after December 2017 and is not subject to expiration under the Tax Cuts and Jobs Act. $47.3 million of net operating loss carryforwards are attributable to acquired subsidiaries and are subject to substantial limitation on their use. At December 31, 2023, Braemar Hotels & Resorts Inc., our REIT, had net operating loss carryforwards for U.S. federal income tax purposes of $109.7 million based on the latest filed tax return. Of this amount, $2.2 million is subject to expiration in 2033. The remainder is not subject to expiration under the Tax Cuts and Jobs Act. We do not recognize deferred tax assets and a valuation allowance for the REIT since the REIT distributes its taxable income as dividends to stockholders, and in turn, the stockholders incur income taxes on those dividends.
The following table summarizes the changes in the valuation allowance (in thousands):
Year Ended December 31,
202320222021
Balance at beginning of year$18,627 $17,343 $14,938 
Additions— 1,284 2,405 
Deductions(2,458)— — 
Balance at end of year$16,169 $18,627 $17,343 
The USVI TRS operates under a tax holiday in the U.S. Virgin Islands, which is effective through December 31, 2028, and may be extended if certain additional requirements are satisfied. The tax holiday is conditional upon our meeting certain employment and investment thresholds. The impact of this tax holiday decreased current foreign taxes by $2.7 million, $3.4 million and $907,000 for the years ended December 31, 2023, 2022 and 2021, respectively. The benefit of the tax holiday on net income (loss) per share was approximately, $0.04, $0.05 and $0.02 for the years ended December 31, 2023, 2022 and 2021, respectively.
In 2022, we acquired The Ritz-Carlton Reserve Dorado Beach in Dorado, Puerto Rico. Our taxable entities in Puerto Rico operate under a tax holiday which is effective through April 2, 2028. The tax holiday is conditional upon meeting certain employment and investment thresholds. The impact of this tax holiday decreased current foreign taxes by $4.0 million and $2.5 million for the years ended December 31, 2023 and 2022, respectively. The benefit of this tax holiday on net income (loss) per share was approximately $0.06 and $0.04 for the years ended December 31, 2023 and 2022, respectively.