Income Taxes

12 Months Ended

Dec. 31, 2019

The provision for income taxes consists of the following:



	Year Ended December 31,
	2019			2018			2017
Current:
Federal	$	115,610		$	126,358		$	211,641
State	34,586			37,038			37,006
Deferred:
Federal	(2,195		)	138			60,785
State	(745		)	(999		)	(42		)
Income tax expense	$	147,256		$	162,535		$	309,390

Deferred income taxes on our consolidated balance sheets were comprised of the following:



	December 31,
	2019		2018
Deferred tax assets:
Other accrued expenses and contract land deposit reserve	$	52,726	$	51,316
Deferred compensation	4,635		4,693
Equity-based compensation expense	42,043		40,744
Inventory	10,530		9,242
Unrecognized tax benefit	12,355		13,587
Other	8,289		5,113
Total deferred tax assets	130,578		124,695
Less: Deferred tax liabilities	7,902		6,091
Net deferred tax asset	$	122,676	$	118,604

Deferred tax assets arise principally as a result of various accruals required for financial reporting purposes and equity-based compensation expense, which are not currently deductible for tax return purposes.

Management believes that we will have sufficient future taxable income to make it more likely than not that the net deferred tax assets will be realized. Federal taxable income is estimated to be approximately $638,723 for the year ended December 31, 2019, and was $640,195 for the year ended December 31, 2018.

A reconciliation of income taxes computed at the federal statutory rate (21% in 2019 and 2018, 35% in 2017) to income tax expense is as follows:



	Year Ended December 31,
	2019			2018			2017
Income taxes computed at the federal statutory rate	$	215,417		$	201,544		$	296,419
State income taxes, net of federal income tax benefit (1)	45,770			42,944			30,046
Excess tax benefits from equity-based compensation	(101,466		)	(77,478		)	(58,681		)
Remeasurement of net deferred tax assets due to enactment of Tax Cut and Jobs Act	—			(497		)	62,702
Other, net (2)	(12,465		)	(3,978		)	(21,096		)
Income tax expense	$	147,256		$	162,535		$	309,390


(1)	Excludes state excess tax benefits from equity-based compensation included in the line below.

(2)

Primarily attributable to tax benefits from certain energy tax credits for the years ended December 31, 2019 and 2018. In 2019, the energy credit recorded related to homes we settled in both 2018 and 2019 due to the retroactive reinstatement of certain expired energy tax credits under the The Further Consolidated Appropriations Act. In 2018, the energy tax credits resulted from credit adjustments related to 2017 home settlement activity. For the year ended December 31, 2017, the tax benefit resulted primarily from the domestic production activities deduction, which was eliminated effective January 1, 2018, following the enactment of the Tax Cuts and Jobs Act in December 2017.

Our effective tax rate in 2019, 2018 and 2017 was 14.36%, 16.94% and 36.53%, respectively.

We file a consolidated U.S. federal income tax return, as well as state and local tax returns in all jurisdictions where we maintain operations. With few exceptions, we are no longer subject to income tax examinations by tax authorities for years prior to 2016.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



	Year Ended December 31,
	2019			2018
Balance at beginning of year	$	43,418		$	45,337
Additions based on tax positions related to the current year	2,941			4,340
Reductions for tax positions of prior years	(7,003		)	(6,259		)
Settlements	—			—
Balance at end of year	$	39,356		$	43,418

If recognized, the total amount of unrecognized tax benefits that would affect the effective tax rate (net of the federal tax benefit) is $31,090 as of December 31, 2019.

We recognize interest related to unrecognized tax benefits as a component of income tax expense. For the years ended December 31, 2019, 2018, and 2017, we recognized a net reversal of accrued interest on unrecognized tax benefits in the amount of $1,467, $1,384 and $1,065, respectively. As of December 31, 2019 and 2018, we had a total of $15,724 and $17,191, respectively, of accrued interest on unrecognized tax benefits which are included in “Accrued expenses and other liabilities” on the accompanying consolidated balance sheets.

We believe that within the next 12 months, it is reasonably possible that the unrecognized tax benefits as of December 31, 2019 will be reduced by approximately $6,951 due to statute expiration and effectively settled positions in various state jurisdictions.