INCOME TAXES

12 Months Ended

Dec. 31, 2023

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

Income tax (benefit) expense consists of the following:

	Year Ended December 31,
	2023		2022		2021
Current:
Federal	$	5,030	$	4,253	$	5,556
State and local	416		4,096		1,470
Foreign	377		—		—
Total current income tax expense (benefit)	$	5,823	$	8,349	$	7,026
Deferred:
Federal	76,380		227,825		130,696
State and local	39,430		43,342		20,504
Foreign	526		—		—
Total deferred income tax expense (benefit)	116,336		271,167		151,200
Total income tax expense (benefit)	$	122,159	$	279,516	$	158,226

Rithm Capital intends to qualify as a REIT for each of its tax years through December 31, 2023. A REIT is generally not subject to U.S. federal corporate income tax on that portion of its income that is distributed to stockholders if it distributes at least 90% of its REIT taxable income to its stockholders by prescribed dates and complies with various other requirements.

Rithm Capital operates various business segments, including origination and servicing, asset management and our investment portfolio, through TRSs that are subject to regular corporate income taxes, which have been provided for in the provision for income taxes, as applicable. Refer to Note 4 for further details.

The decrease in income tax expense for the year ended December 31, 2023 is primarily driven by current and deferred tax expense resulting from changes in the fair value of MSRs, and swaps held within taxable entities, offset by income generated by the origination and servicing and asset management business segments.

The increase in income tax expense for the year ended December 31, 2022 is primarily driven by current and deferred tax expense resulting from changes in the fair value of MSRs and swaps held within taxable entities, as well as income generated by the servicing business segment.

As part of the Sculptor Acquisition, Rithm Capital acquired a net deferred tax asset of $305.0 million, primarily composed of net operating losses and tax deductible goodwill. As of December 31, 2023, Sculptor recorded a net deferred tax asset of $279.0 million, which is reported within other assets in the Consolidated Balance Sheets. As of December 31, 2023, Rithm Capital recorded a net deferred tax liability of $801.9 million, primarily composed of deferred tax liabilities generated through the deferral of gains from residential mortgage loans sold by the origination business and changes in fair value of MSRs, loans and swaps held within taxable entities, which is reported within accrued expenses and other liabilities in the Consolidated Balance Sheets.

The difference between Rithm Capital’s reported provision for income taxes and the U.S. federal statutory rate of 21.0% is as follows:

	December 31,
	2023		2022		2021
Provision at the statutory rate	21.00	%	21.00	%	21.00	%
Non-taxable REIT income	(11.14)	%	(3.36)	%	(7.38)	%
State and local taxes	3.71	%	4.05	%	3.86	%
Foreign taxes	0.21	%	—	%	—	%
Change in state tax rate	1.14	%	—	%	—	%
Return to provision	—	%	—	%	(1.10)	%
Change in valuation allowance	0.82	%	—	%	—	%
Other	0.74	%	0.44	%	0.05	%
Total provision	16.48	%	22.13	%	16.43	%

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and liability are presented below:

	December 31,
	2023		2022
Deferred tax assets:
Net operating losses and tax credit carryforwards(A)	$	169,907	$	23,627
Basis differences related to assets and investments	90,395		32,447
Goodwill	202,023		26,289
Fixed Asset Depreciation	2,536		—
Accrued expenses	47,086		44,572
Other	5,822		1,573
Total deferred tax assets	517,769		128,508
Less: valuation allowance	(34,563)		—
Net deferred tax assets	$	483,206	$	128,508
Deferred tax liabilities:
Mortgage servicing rights	$	(923,311)	$	(791,691)
Basis differences related to assets and investments	(81,061)		(26,832)
Fixed asset depreciation	—		(19,302)
Other	(1,672)		(2,538)
Total deferred tax (liability)	$	(1,006,044)	$	(840,363)
Net deferred tax assets (liability)	$	(522,838)	$	(711,855)

(A)As of December 31, 2023, Rithm Capital’s TRSs had approximately $610.4 million of net operating loss carryforwards for federal and state income tax purposes which may be available to offset future taxable income, if and when it arises. Approximately, $420.9 million of federal and state net operating losses are subject to an annual Internal Revenue Code Section 382 limitation. The federal and state net operating loss carryforwards will begin to expire between 2027 and 2042. The utilization of the net operating loss carryforwards to reduce future income taxes will depend on the TRSs ability to generate sufficient taxable income prior to the expiration of the carryforward period.

The following table presents changes in the Company’s deferred tax asset valuation allowance for the periods indicated:

	December 31,
	2023	2022	2021
Sculptor Acquisition (Note 3)	32,340	—	—
Net change	2,223	—	—
Ending Balance	34,563	—	—

In assessing the realizability of deferred tax assets, Rithm Capital considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible. As of December 31, 2023, the Company has recorded a valuation allowance of $34.6 million related to Sculptor’s foreign income tax credits with limited carryforward period available, as well as, Sculptor’s Federal and New York State and City net operating losses, which are limited pursuant to Internal Revenue Code Section 382 as a result of the Company’s acquisition of Sculptor. The net increase in the valuation allowance relates primarily to New York state rate changes.

Rithm Capital and its TRSs file income tax returns with the U.S. federal government and various state and local jurisdictions. Generally, Rithm Capital is no longer subject to tax examinations by tax authorities for tax years ended prior to December 31, 2020. Rithm Capital recognizes tax benefits for uncertain tax positions only if it is more likely than not that the position is sustainable based on its technical merits. Interest and penalties on uncertain tax positions are included as a component of the provision for income taxes on the consolidated statements of operations. As of December 31, 2023, Rithm Capital has no material uncertainties to be recognized. Rithm Capital does not believe that it is reasonably possible that the total amount of unrecognized tax benefits will significantly change within 12 months of the reporting date.

Common stock distributions were taxable as follows:

Year	Dividends per Share		Ordinary Income		Long-Term Capital Gain		Return of Capital
2023(A)	$	1.25	100.00	%	—	%	—	%
2022(B)	$	0.41	41.47	%	—	%	58.53	%
2021(C)	$	0.50	58.84	%	—	%	41.16	%

(A)The entire $0.25 per share dividend declared in December 2023 and paid in January 2024 is treated as received by stockholders in 2023.

(B)The entire $0.25 per share dividend declared in December 2022 and paid in January 2023 is treated as received by stockholders in 2023.

(C)The entire $0.25 per share dividend declared in December 2021 and paid in January 2022 is treated as received by stockholders in 2022.

Series A Preferred stock distributions were as follows:

Year	Dividends per Share		Ordinary Income		Long-Term Capital Gain		Return of Capital
2023(A)	$	1.88	100	%	—	%	—	%
2022(B)	$	1.88	100	%	—	%	—	%
2021(C)	$	1.88	100	%	—	%	—	%

(A)The entire $0.47 per share dividend declared in December 2023 and paid in January 2024 is treated as received by stockholders in 2024.

(B)The entire $0.47 per share dividend declared in December 2022 and paid in January 2023 is treated as received by stockholders in 2023.

(C)The entire $0.47 per share dividend declared in December 2021 and paid in January 2022 is treated as received by stockholders in 2022.

Series B Preferred stock distributions were as follows:

Year	Dividends per Share		Ordinary Income		Long-Term Capital Gain		Return of Capital
2023(A)	$	1.78	100	%	—	%	—	%
2022(B)	$	1.78	100	%	—	%	—	%
2021(C)	$	1.78	100	%	—	%	—	%

(A)The entire $0.45 per share dividend declared in December 2023 and paid in January 2024 is treated as received by stockholders in 2024.

(B)The entire $0.45 per share dividend declared in December 2022 and paid in January 2023 is treated as received by stockholders in 2023.

(C)The entire $0.45 per share dividend declared in December 2021 and paid in January 2022 is treated as received by stockholders in 2022.

Series C Preferred stock distributions were as follows:

Year	Dividends per Share		Ordinary Income		Long-Term Capital Gain		Return of Capital
2023(A)	$	1.59	100	%	—	%	—	%
2022(B)	$	1.59	100	%	—	%	—	%
2021(C)	$	1.59	100	%	—	%	—	%

(A)The entire $0.40 per share dividend declared in December 2023 and paid in January 2024 is treated as received by stockholders in 2024.

(B)The entire $0.40 per share dividend declared in December 2022 and paid in January 2023 is treated as received by stockholders in 2023.

(C)The entire $0.40 per share dividend declared in December 2021 and paid in January 2022 is treated as received by stockholders in 2022.

Series D Preferred stock distributions were as follows:

Year	Dividends per Share		Ordinary Income		Long-Term Capital Gain		Return of Capital
2023(A)	$	1.75	100	%	—	%	—	%
2022(B)	$	1.75	100	%	—	%	—	%
2021(C)	$	0.28	100	%	—	%	—	%

(A)The entire $0.44 per share dividend declared in December 2023 and paid in January 2024 is treated as received by stockholders in 2024.

(B)The entire $0.44 per share dividend declared in December 2022 and paid in January 2023 is treated as received by stockholders in 2023.

(C)The entire $0.28 per share dividend declared in December 2021 and paid in January 2022 is treated as received by stockholders in 2022.