Income Taxes

12 Months Ended

Dec. 31, 2019

Our Consolidated Financial Statements include the operations of our TRSs, which are not entitled to the dividends paid deduction and are subject to federal, state and local income taxes on its taxable income. During the years ended December 31, 2019, 2018 and 2017, the Company qualified as a REIT and incurred no federal income tax expense; accordingly, the only federal income taxes included in the accompanying Consolidated Financial Statements relate to activities of our TRSs. The components of the income tax (provision) benefit for the years ended December 31, 2019, 2018 and 2017 is comprised of the following:



	Year Ended December 31,
	2019			2018			2017
Current:
Federal	$	(169	)	$	22		$	(859	)
State	(839		)	(310		)	(344		)
Deferred:
Federal	(2,334		)	400			—
State	(64		)	(20		)	10
Total Income Tax (Provision) Benefit	$	(3,406	)	$	92		$	(1,193	)

Deferred income taxes represent the tax effect of the temporary differences between the book and tax basis of assets and liabilities. Deferred income tax assets and liabilities include the following as of December 31, 2019 and 2018:



	Year Ended December 31,
	2019			2018
Basis Difference - Real Estate Properties	$	1,388		$	739
Section 163(j) Interest Limitation	600			344
Other - Temporary Differences	329			184
Valuation Allowance	(850		)	(840		)
Total Deferred Income Tax Assets, Net of Allowance	$	1,467		$	427

Deferred Income - Investment in Joint Venture	$	(3,374	)	$	—
Other - Temporary Differences	(295		)	(231		)
Total Deferred Income Tax Liabilities	$	(3,669	)	$	(231	)
Total Net Deferred Income Tax (Liabilities) Assets	$	(2,202	)	$	196

A valuation allowance is recorded if we believe it is more likely than not that all or some portion of our deferred income tax assets will not be realized. We do not have projections of future taxable income or other sources of taxable income in one of the TRSs significant enough to allow us to believe it is more likely than not that we will realize our deferred income tax assets. Therefore, we have recorded a valuation allowance against the deferred income tax assets within that TRS. An increase or decrease in the valuation allowance that results from a change in circumstances, and which causes a change in our judgment about the realizability of the related deferred income tax assets, is included in the current income tax provision.

The differences between the income tax provision calculated at the statutory U.S. federal income tax rate and the actual income tax provision recorded are as follows:



	Year Ended December 31,
	2019			2018			2017
Tax (Provision) Benefit at Federal Rate	$	(2,556	)	$	436		$	(1,416	)
Change in Federal Tax Rate	—			—			(609		)
State Tax Provision, Net of Federal Benefit	(903		)	(417		)	(376		)
Change in Valuation Allowance	(10		)	144			1,197
Other	63			(71		)	11
Net Income Tax (Provision) Benefit	$	(3,406	)	$	92		$	(1,193	)

We evaluate tax positions taken in the financial statements on a quarterly basis under the interpretation for accounting for uncertainty in income taxes. As a result of this evaluation, we may recognize a tax benefit from an uncertain tax position only if it is "more-likely-than-not" that the tax position will be sustained on examination by taxing authorities. As of December 31, 2019, we do not have any unrecognized tax benefits.

We file income tax returns in the U.S. and various states. The statute of limitations for income tax returns is generally three years. As such, our tax returns that are subject to examination would be primarily from 2016 and thereafter. There were no material interest or penalties recorded for the years ended December 31, 2019, 2018 and 2017.

Federal Income Tax Treatment of Common Dividends

For the years ended December 31, 2019, 2018 and 2017, the dividends paid to the Company's common shareholders per common share for income tax purposes were characterized as follows:



	2019		As a Percentage of Distributions		2018		As a Percentage of Distributions		2017		As a Percentage of Distributions
Ordinary Income ^(A)	$	0.7650	83.15	%	$	0.6858	78.83	%	$	0.6552	74.23	%
Unrecaptured Section 1250 Capital Gain	0.1074		11.68	%	0.1497		17.21	%	0.1627		18.43	%
Other Capital Gain	0.0460		5.00	%	0.0330		3.79	%	0.0648		7.34	%
Qualified Dividend	0.0016		0.17	%	0.0015		0.17	%	—		0.00	%
	$	0.9200	100.00	%	$	0.8700	100.00	%	$	0.8827	100.00	%

^(A)For the years ended December 31, 2019 and 2018, the Code Section 199A dividend is equal to the total ordinary income dividend.

The income tax characterization of dividends to common shareholders is based on the calculation of Taxable Earnings and Profits, as defined in the Code. Taxable Earnings and Profits differ from regular taxable income due primarily to differences in the estimated useful lives and methods used to compute depreciation and in the recognition of gains and losses on the sale of real estate assets.