6. Income Taxes

We have maintained and intend to maintain our election as a REIT under the Internal Revenue Code of 1986, as amended. In order for us to continue to qualify as a REIT we must meet a number of organizational and operational requirements, including a requirement to distribute annual dividends to our shareholders equal to a minimum of 90% of our adjusted taxable income. As a REIT, we generally will not be subject to federal income tax on our taxable income at the corporate level to the extent such income is distributed to our shareholders annually. If our taxable income exceeds our dividends in a tax year, REIT tax rules allow us to designate dividends from the subsequent tax year in order to avoid current taxation on undistributed income. If we fail to qualify as a REIT in any taxable year, we will be subject to federal and state income taxes at regular corporate rates, including any applicable alternative minimum tax. In addition, we may not be able to requalify as a REIT for the four subsequent taxable years. Historically, we have incurred only state and local income, franchise, and excise taxes. Taxable income from non-REIT activities managed through taxable REIT subsidiaries is subject to applicable federal, state, and local income taxes. Our operating partnerships are flow-through entities and are not subject to federal income taxes at the entity level.

We have recorded income, franchise, and excise taxes in the consolidated statements of income and comprehensive income for the years ended December 31, 2016, 2015 and 2014 as income tax expense. Income taxes for the years ended December 31, 2016, 2015 and 2014, primarily related to state income tax and federal taxes on certain of our taxable REIT subsidiaries. We have no significant temporary or permanent differences or tax credits associated with our taxable REIT subsidiaries.

For income tax purposes, distributions to common shareholders are characterized as ordinary income, capital gains or as a return of a shareholder's invested capital. A summary of the income tax characterization of our distributions paid per common share for the years ended December 31, 2016, 2015 and 2014 is set forth in the following table:



	Year Ended December 31,
	2016			2015			2014
Common Share Distributions
Ordinary income	$	—		$	1.88		$	1.23
Long-term capital gain	5.02			0.70			1.02
Unrecaptured Sec. 1250 gain	2.23			0.22			0.39
Total	$	7.25		$	2.80		$	2.64
Percentage of distributions representing tax preference items	0.34		%	3.73		%	4.17		%

We have taxable REIT subsidiaries which are subject to federal and state income taxes. At December 31, 2016, our taxable REIT subsidiaries had net operating loss carryforwards (“NOL’s”) of approximately $0.1 million which expire in years 2034 to 2036. Because NOL’s are subject to certain change of ownership, continuity of business, and separate return year limitations, and because we believe it is unlikely the available NOL’s will be utilized or if utilized, any amounts will be immaterial, no benefits related to these NOL’s have been recognized in our consolidated financial statements.

The carrying value of net assets reported in our consolidated financial statements at December 31, 2016 exceeded the tax basis by approximately $1.5 billion.

Income Tax Expense. For the tax year ended December 31, 2016 , we had income tax expense of approximately $1.6 million, and for each of the tax years ended December 31, 2015 and 2014, we had income tax expense of approximately $1.9 million. Income tax for the years ended December 31, 2016, 2015, and 2014 was comprised mainly of state income tax and federal income tax related to one of our taxable REIT subsidiaries.

Income Tax Expense – Deferred. For the years ended December 31, 2016, 2015, and 2014, our deferred tax expense was not significant.

Camden Property Trust's and our subsidiaries’ income tax returns are subject to examination by federal, state and local tax jurisdictions for years 2013 through 2015. NOL's and other tax attributes generated in years prior to 2013 are also subject to challenge in any examination of those tax years. We believe we have no uncertain tax positions or unrecognized tax benefits requiring disclosure as of and for the periods presented.