Income Taxes

6 Months Ended

Jun. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

During the six months ended June 30, 2021, we recorded an income tax benefit of $5,052, resulting in an effective tax rate of (7.35)%, which is primarily a result of a deferred tax liability created through our April 2, 2021 acquisition of RentPath and can be used to realize certain deferred tax assets against which we had previously recorded a full valuation allowance. Our June 30, 2020 effective tax rate of 0% is a result of our previously recorded full valuation allowance against our deferred tax assets.

In determining the realizability of the net U.S. federal and state deferred tax assets, we consider numerous factors including historical profitability, estimated future taxable income, prudent and feasible tax planning strategies, and the industry in which we operate. Management reassesses the realization of the deferred tax assets each reporting period, which resulted in a valuation allowance against the full amount of our U.S. deferred tax assets for the six months ended June 30, 2021 and 2020. To the extent that the financial results of our U.S. operations improve in the future and the deferred tax assets become realizable, we will reduce the valuation allowance through earnings.

Under Section 382 of the Internal Revenue Code of 1986, as amended, substantial changes in our ownership may limit the amount of net operating loss ("NOL") carryforwards that could be utilized annually in the future to offset taxable income. Any such annual limitation may significantly reduce the utilization of the NOLs before they expire. A Section 382 limitation study performed as of March 31, 2017 determined that Redfin experienced an ownership change in 2006 and $1,538 of the 2006 NOL is unavailable. Furthermore, in connection with the acquisition of RentPath, RentPath experienced an ownership change that triggered Sections 382, which may limit our ability to utilize RentPath’s pre-change tax attributes. A Section 382 limitation study is currently in process with respect to any resulting limitations to the future use of RentPath’s tax attributes and is expected to conclude during the third quarter of 2021.

As of December 31, 2020, we had accumulated approximately $227,751 of federal net operating losses, approximately $12,576 (tax effected) of state net operating losses, and approximately $2,050 of foreign net operating losses. Federal net operating losses are available to offset federal taxable income and begin to expire in 2025. Federal net operating loss carryforwards of $142,420 generated after 2017 available to offset future U.S. federal taxable income over an indefinite period.

As of April 2, 2021, RentPath had accumulated approximately $114,082 of federal net operating losses and $142,632 of deductible but limited federal business interest expense carryforwards. Federal net operating losses are available to offset federal taxable income and begin to expire in 2024. Federal net operating loss carryforwards of $42,911 generated after 2017 are available to offset future U.S. federal taxable income over an indefinite period. Deductible but limited federal business interest expense carryforwards are available to offset future U.S. federal taxable income over an indefinite period.

Our material income tax jurisdiction is the United States (federal) and Canada (foreign). As a result of NOL carryforwards, we are subject to audit for all tax years for federal purposes. All tax years remain subject to examination in various other jurisdictions that are not material to our consolidated financial statements.