INCOME TAXES

On December 22, 2017, the President signed the Tax Cuts and Jobs Act (TCJA), a comprehensive tax legislation which, among other things, reduced the Company's statutory federal income tax rate from 34% to 21% effective January 1, 2018. In addition to the reduction in tax rates, the TCJA made broad and complex changes to the Internal Revenue Code that introduced changes to many tax related exclusions, deductions and credits. At December 31, 2017, $1,575,000 in AMT credit was booked as a deferred tax asset. Effective December 31, 2018, the Company recognized the AMT credit in federal income tax recoverable of which $1,074,000 was recovered with the 2018 return and Management anticipates the remainder will be recovered by 2021 pursuant to allowable amounts under the TCJA. Management believes that, based on its historical pattern of taxable income, the Company will produce sufficient income in the future to realize its deferred tax assets. The Company recognized a net deferred tax liability position of $186,000 at September 30, 2019 and a net deferred tax asset position of $716,000 at December 31, 2018.

The tax effect of significant differences representing deferred tax assets and liabilities are as follows (dollars in thousands):



	As of September 30, 2019			As of December 31, 2018
General expenses	$	1,152		$	1,067
Unearned premiums	1,379			1,265
Claims liabilities	582			552
Impairment on real estate owned	119			119
Unrealized losses on securities available-for-sale	—			368
Unrealized loss on interest rate swaps	25			49
Deferred tax assets	3,257			3,420

Trading securities	(2		)	—
Depreciation	(79		)	(79		)
Deferred policy acquisition costs	(1,662		)	(1,645		)
Pre-1984 policyholder surplus account	(413		)	(463		)
Unrealized gains on securities available-for-sale	(533		)	—
Unrealized gains on equity securities	(754		)	(517		)
Deferred tax liabilities	(3,443		)	(2,704		)
Net deferred tax asset (liability)	$	(186	)	$	716

The appropriate income tax effects of changes in temporary differences are as follows (dollars in thousands):



	Nine months ended September 30,
	2019			2018
Deferred policy acquisition costs	$	17		$	(8	)
Trading securities	2			—
Unearned premiums	(114		)	(88		)
General expenses	(85		)	(27		)
Depreciation	—			(9		)
Claims liabilities	(30		)	5
AMT credit	—			809
Impact of repeal of special provision on pre-1984 policyholder surplus	(50		)	(49		)
Unrealized gains on equity securities	15			12
Deferred income tax expense (benefit)	$	(245	)	$	645

Total income tax expense (benefit) varies from amounts computed by applying current federal income tax rates to income or loss before income taxes. The reasons for these differences and the approximate tax effects are as follows:



	Nine months ended September 30,
	2019		2018
Federal income tax rate applied to pre-tax income/loss	21.0	%	21.0	%
Dividends received deduction and tax-exempt interest	(0.5	)%	(0.9	)%
Company owned life insurance	(18.5	)%	1.2	%
Other, net	(0.2	)%	2.2	%
Effective federal income tax rate	1.8	%	23.5	%

The Company recognizes tax-related interest and penalties as a component of tax expense. The Company files income tax returns in the U.S. federal jurisdiction and various states. The Company is not subject to examinations by authorities related to its U.S. federal or state income tax filings for years prior to 2014. Tax returns have been filed through the year 2017.