INCOME TAXES

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

The Company elected to be taxed as a REIT under Sections 856 through 860 of the Code commencing with its taxable year ended December 31, 1999. To qualify as a REIT, the Company must meet a number of organizational and operational requirements, including a requirement that it currently distribute at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gain, to its shareholders. It is the Company’s current intention to adhere to these requirements and maintain the Company’s qualification for taxation as a REIT. As a REIT, the Company generally will not be subject to federal corporate income tax on that portion of its net income that is currently distributed to shareholders. If the Company fails to qualify for taxation as a REIT in any taxable year, it will be subject to federal income taxes at regular corporate rates (including any applicable alternative minimum tax for taxable years prior to 2018) and may not be able to qualify as a REIT for four subsequent taxable years. Even if the Company qualifies for taxation as a REIT, the Company may be subject to certain state and local taxes on its income and property, and to federal income and excise taxes on its undistributed taxable income.

Taxable income from non-REIT activities managed through TRSs is subject to federal, state and local income taxes. As a TRS, 44 New England is subject to income taxes at the applicable federal, state and local tax rates.

The provision for income taxes differs from the amount of income tax determined by applying the applicable statutory federal income tax rate (21%) to pretax income from continuing operations as a result of the following differences:

	For the year ended December 31,
	2022		2021		2020
Statutory federal income tax provision	$	35,881	$	(9,241)	$	(37,365)
Adjustment for nontaxable income for Hersha Hospitality Trust	(32,658)		13,065		29,636
State income taxes, net of federal income tax effect	8,128		(1,367)		(2,720)
Non-deductible expenses, tax credits, and other, net	647		361		(1,317)
Changes in valuation allowance	(7,198)		(1,980)		23,095
Total income tax expense	$	4,800	$	838	$	11,329

NOTE 13 – INCOME TAXES (CONTINUED)

The components of the Company’s income tax expense (benefit) for the years ended December 31, 2022, 2021 and 2020 were as follows:

	For the year ended December 31,
	2022		2021		2020
Income tax expense (benefit):
Current:
Federal	$	—	$	—	$	(51)
State	4,800		838		(10)
Deferred:
Federal	—		—		7,688
State	—		—		3,702
Total	$	4,800	$	838	$	11,329

The components of consolidated TRS’s net deferred tax asset as of December 31, 2022 and 2021 were as follows:

	As of December 31,
	2022		2021
Deferred tax assets:
Net operating loss carryforwards	$	13,245	$	19,084
Accrued expenses and other	773		2,002
Tax credit carryforwards	289		355
Depreciation and amortization	107		171
Total gross deferred tax assets	14,414		21,612
Valuation allowance	(14,414)		(21,612)
Total Net deferred tax assets	$	—	$	—

In assessing the realizability of deferred tax assets, Management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Based on the level of historical taxable income and projections for future taxable income over which the deferred tax assets are deductible and limitations related to the utilization of certain tax attribute carryforwards, Management believes it is more likely than not that the remaining deferred tax assets will not be realized.

As of December 31, 2022, we have gross federal net operating loss carryforwards of $42,920 of which $2,365 expire over various periods from 2023 through 2029 and $40,555 carries forward indefinitely.  As of December 31, 2022, we have gross state net operating loss carryforwards of $67,616 of which $56,853 expire over various periods from 2023 to 2040 and $10,763 carries forward indefinitely.  The Company has tax credits of $289 available which begin to expire in 2032.

NOTE 13 – INCOME TAXES (CONTINUED)

Earnings and profits, which will determine the taxability of distributions to shareholders, will differ from net income reported for financial reporting purposes due to the differences for federal tax purposes in the estimated useful lives and methods used to compute depreciation. The following table sets forth certain per share information regarding the Company’s common and preferred share distributions for the years ended December 31, 2022, 2021 and 2020.

	2022		2021		2020
Preferred Shares - 6.875% Series C
Ordinary income	2.17	%	0.00	%	0.00	%
Return of Capital	0.00	%	0.00	%	100.00	%
Capital Gain Distribution	97.83	%	100.00	%	0.00	%
Preferred Shares - 6.5% Series D
Ordinary income	2.17	%	0.00	%	0.00	%
Return of Capital	0.00	%	0.00	%	100.00	%
Capital Gain Distribution	97.83	%	100.00	%	0.00	%
Preferred Shares - 6.5% Series E
Ordinary income	2.17	%	0.00	%	0.00	%
Return of Capital	0.00	%	0.00	%	100.00	%
Capital Gain Distribution	97.83	%	100.00	%	0.00	%
Common Shares - Class A
Ordinary income	2.17	%	N/A		0.00	%
Return of Capital	0.00	%	N/A		100.00	%
Capital Gain Distribution	97.83	%	N/A		0.00	%