NOTE 9 — 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 2014.

On December 22, 2017 the Tax Cuts and Jobs Act (“Tax Act”) was enacted. Among the significant changes to the Internal Revenue Code, the Tax Act reduces the maximum federal corporate tax rate from 35% to 21% for the tax years after 2017. Accordingly, Capstead’s taxable REIT subsidiary has adjusted the balance of its net deferred tax assets and the corresponding valuation allowance.

For tax years after 2017, the Tax Act repealed the corporate Alternative Minimum Tax (“AMT”). AMT credit carryforwards became fully utilizable without limitation or, in the absence of regular tax liability, fully refundable over the next four years. Accordingly, in 2017 the Company recognized a tax benefit of $1.9 million as the estimated refund of AMT under the Tax Act in Miscellaneous other revenue (expense) on the Company’s Consolidated Statement of Income and recorded a long-term receivable in Receivables and other assets on the Company’s Consolidated Balance Sheet.

The impact of the Tax Act may differ from the above estimate due to, among other things, changes in interpretations of the Tax Act or regulatory guidance that may be issued. The Securities and Exchange Commission (“SEC”) has issued rules that allow for a measurement period of up to one year after the enactment date of the Tax Act to finalize the recording of the related tax impacts and additional impacts from the enactment of the Tax Act will be recorded in future periods as they are identified.

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
	2017			2016			2015
Income taxes computed at the federal statutory rate	$	27,856		$	29,005		$	37,914
Benefit of REIT status		(27,854	)		(29,003	)		(37,913	)
Income taxes computed on income of Capstead’s sole taxable REIT subsidiary		2			2			1
Alternative minimum tax credit refund receivable		(1,941	)		-			-
Change in deferred asset balance due to change in corporate tax rate		29			-			-
Other change in net deferred income tax assets		(31	)		(2	)		(1	)
Income tax (benefit) provision recorded in miscellaneous other revenue (expense)	$	(1,941	)	$	–		$	–

No income taxes were paid during 2017, 2016 or 2015. At December 31, 2017 Capstead REIT had $19.8 million in net capital loss carryforwards that expire at the end of 2019. 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
	2017		2016
Deferred income tax assets:
Alternative minimum tax credit	$	-	$	1,941
Net operating loss carryforwards ^(a)		32		55
Other		11		20
		43		2,016
Deferred income tax liabilities		–		–
Net deferred tax assets	$	43	$	2,016
Valuation allowance ^(b)	$	43	$	2,016

(a)	Excludes $3.5 million in remaining net operating loss carryforwards which expire beginning after 2019. Should these carryforwards be utilized, they will be excluded for purposes of calculating the Company’s provision for income taxes. Any such utilization will, however, reduce actual taxes payable.

(b)	Because this subsidiary is not expected to earn significant amounts of taxable income, related net deferred tax assets are fully reserved at December 31, 2017.