NOTE 10 ¾ INCOME TAXES

Capstead REIT and a subsidiary for which the Company has elected taxable REIT subsidiary status file separate tax returns in U.S. federal and state jurisdictions, where applicable. Provided Capstead REIT remains qualified as a REIT and all its taxable income is distributed to stockholders within allowable time limits, no income taxes are due on this income. Accordingly, no provision has been made for income taxes for Capstead REIT. Taxable income, if any, of the Company’s taxable REIT subsidiary, which is largely dormant, is fully taxable and provision is made for any resulting income taxes. The Company is no longer subject to examination and the related assessment of tax by federal, state, or local tax authorities for years before 2011, with the possible exception of certain information reporting and disclosure penalties with respect to earlier years. Management believes any such amounts would not have a material adverse effect on the Company’s financial condition.

The Company’s effective tax rate differs substantially from statutory federal income tax rates primarily due to the benefit of Capstead REIT’s status as a REIT, along with other items affecting the Company’s effective tax rate as illustrated below for the indicated periods (in thousands):

	Year ended December 31
	2014			2013			2012
Income taxes computed at the federal statutory rate	$	49,287		$	44,270		$	57,269
Benefit of REIT status		(49,28	)		(44,270	)		(57,268	)
Income taxes computed on income of Capstead’s sole taxable REIT subsidiary		4			–			1
Change in net deferred income tax assets		(4	)		1			(1	)
Other		–			(1	)		–
Income tax provision	$	–		$	–		$	–

No income taxes were paid during 2014, 2013 or 2012. Significant components of the Company’s taxable REIT subsidiary’s deferred income tax assets and liabilities were as follows as of the indicated dates (in thousands):

	December 31
	2014		2013
Deferred income tax assets:
Alternative minimum tax credit ^(a)	$	1,941	$	1,942
Net operating loss carryforwards ^(b)		58		60
Other		20		21
		2,019		2,023
Deferred income tax liabilities		–		–
Net deferred tax assets	$	2,019	$	2,023
Valuation allowance ^(c)	$	2,019	$	2,023

(a)

Alternative minimum tax credit carryforwards can be utilized to offset payment of federal income taxes on future taxable income, if any, earned by this subsidiary, subject to certain limitations.

(b)

Excludes $3.5 million in remaining net operating loss carryforwards which expire beginning after 2019. To the extent these carryforwards are utilized in future periods, the benefit will reduce actual taxes payable.

(c)

Because this subsidiary is not expected to earn significant amounts of taxable income, related net deferred tax assets are fully reserved at December 31, 2014.