7.	Income Taxes

Presidential has elected to qualify as a Real Estate Investment Trust under the Internal Revenue Code. A REIT which distributes at least 90% of its real estate investment trust taxable income to its shareholders each year by the end of the following year and which meets certain other conditions will not be taxed on that portion of its taxable income which is distributed to its shareholders.

ASC 740 prescribes a more likely than not recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken. If the Company’s tax position in relation to a transaction was not likely to be upheld, the Company would be required to record the accrual for the tax and interest thereon. As of December 31, 2013, the tax years that remain open to examination by the federal, state and local taxing authorities are the 2010 – 2012 tax years and the Company was not required to accrue any liability for those tax years.

The Company has accumulated a net operating loss carry forward of approximately $19,000,000 expiring from 2028 through 2032.

For the year ended December 31, 2012, the Company had a tax loss of approximately $1,400,000 ($.38 per share), which was all ordinary losses.

For the year ended December 31, 2013, the Company had taxable income of approximately $2,600,000 ($.71 per share), which is comprised of ordinary income of approximately $1,900,000 ($.52 per share) and a capital gain of approximately $700,000 ($.19 per share).

As previously stated, in order to maintain REIT status, Presidential is required to distribute 90% of its REIT taxable income (exclusive of capital gains). As a result of the operating loss carry forward applied against 2013 income, there is no requirement to make a distribution in 2014. In addition, no provision for federal income taxes was required at December 31, 2013 and 2012.