Income Taxes

9 Months Ended

Sep. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

11. INCOME TAXES

At December 31, 2020, the Company maintained an $18.1 million valuation allowance on deferred tax assets. In each reporting period, the Company assesses available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of existing deferred tax assets. One component of this analysis is to determine whether the Company was in a cumulative loss position for the most recent three-year period. For the three-year period ended December 31, 2020, the Company was in a cumulative loss position, and the Company’s history of operating losses limited the weight applied to other subjective evidence, such as projections for future profitability.

As a result of the Company’s current year financial performance, the Company is in a cumulative income position for the most recent three-year analysis periods. Despite the volatility of the housing and construction industries, the Company has continued to maintain high profitability through the third quarter of 2021. The Company has determined that profitability has been sustained and overall significant positive evidence exists to conclude that its deferred tax assets are more likely than not to be realized. For the past several quarters, the Company has met or exceeded its forecast, and based on current forecasts, the Company anticipates using the full amount of its $41.4 million available federal net operating losses (“NOL’s”) to offset taxable income in 2021.

Based on its assessment during the third quarter of 2021 of cumulative three-year and forecasted earnings, the Company has released $11.4 million of the valuation allowance on deferred tax assets. At September 30, 2021, the Company has retained a valuation allowance of $6.7 million on state NOL’s that are more likely than not to expire before utilization.

The Company’s effective tax rate from continuing operations was a benefit of 1.9% and 0% for the three-month, and 0% and 0% for the nine-month periods ended September 30, 2021 and 2020, respectively.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“the Cares Act”) was signed into law, making several changes to the Internal Revenue Code. The Cares Act provides numerous tax provisions and other stimulus measures, including temporary changes regarding the prior and future utilization of net operating losses, temporary changes to the prior and future limitations on interest deductions, temporary suspension of certain payment requirements for the employer portion of Social Security taxes, technical corrections from prior tax legislation for tax depreciation of certain qualified improvement property, alternative minimum tax credit refunds, and the creation of certain refundable employee retention credits. Under the Cares Act, the 163(j) interest deduction limitation was increased from 30% to 50% for the 2019 and 2020 tax years. The Company benefitted from the provision by being able to deduct an additional $4.3 million of interest expense in 2020. No other provisions of the Cares Act were materially beneficial to the Company.