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INCOME TAXES
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
The table below represents a geographical breakdown of book income (loss) before the provision for income taxes:
 Year ended December 31,
(Dollars in millions)202220212020
Domestic$88.5 $447.6 $(37.0)
Foreign49.6 14.9 188.4 
Total$138.1 $462.5 $151.4 

The U.S. and foreign components of provision for income taxes consisted of the following components. However, it is not reflective of the cash tax results of the Company.
 Year ended December 31,
(Dollars in millions)202220212020
Federal
Current$— $— $— 
Deferred3.6 94.4 23.3 
3.6 94.4 23.3 
State
Current0.3 (0.2)1.5 
Deferred11.3 9.1 0.4 
11.6 8.9 1.9 
Foreign
Current17.6 14.2 14.9 
Deferred3.4 8.7 3.5 
21.0 22.9 18.4 
Total$36.2 $126.2 $43.6 
    
A reconciliation of the statutory federal income tax rate of 21% with Kennedy Wilson’s effective income tax rate is as follows:
 Year ended December 31,
(Dollars in millions)202220212020
Tax computed at the statutory rate$29.0 $97.1 $31.8 
Tax deduction in excess of book compensation from restricted stock vesting— — 0.1 
Domestic permanent differences, primarily disallowed executive compensation7.8 8.1 7.2 
Foreign permanent differences, primarily non-deductible depreciation, amortization and interest expenses in the United Kingdom1.7 8.2 2.0 
Effect of foreign operations, net of foreign tax credit(8.8)7.4 (3.7)
Noncontrolling interests(1.1)(2.6)(0.9)
State income taxes, net of federal benefit2.8 7.0 2.9 
Other4.8 1.0 4.2 
Provision for income taxes$36.2 $126.2 $43.6 
Cumulative tax effects of temporary differences are shown below at December 31, 2022 and 2021:
 Year ended December 31,
(Dollars in millions)20222021
Deferred tax assets:
Foreign currency translation$5.0 $2.7 
Net operating loss carryforward and credits152.0 172.4 
Depreciation and amortization51.5 — 
Investment basis difference90.7 96.8 
Stock option expense2.0 2.2 
Hedging transactions10.0 7.8 
Lease liability0.1 0.1 
Accrued reserves9.5 11.1 
Total deferred tax assets320.8 293.1 
Valuation allowance(265.9)(257.1)
Net deferred tax assets54.9 36.0 
Deferred tax liabilities:
Investment basis and reserve differences344.9 285.4 
Depreciation and amortization— 3.9 
Right of use asset0.1 0.1 
Prepaid expenses and other3.7 2.2 
Capitalized interest1.0 1.3 
Total deferred tax liabilities349.7 292.9 
Deferred tax liability, net$(294.8)$(256.9)

During 2019, the United Kingdom enacted a Finance Act, which introduced a new capital gain tax for non-UK resident investors who dispose of UK real estate. The new capital gain tax law became effective on April 6, 2019. Beginning on this date, non-UK resident investors are subject to UK tax on gains arising from the direct and indirect dispositions of UK real estate held for investment purposes. Transitional provisions allowed for rebasing of UK real estate values to fair market value as of April 5, 2019 ("UK Basis Step-Up"). Accordingly, only gains arising from property value increases after April 5, 2019 are subject to tax. The step-up led to a higher tax basis relative to the carrying value of the UK real estate, thus resulting in a UK deferred tax asset of $107.0 million. The realizability of this deferred tax asset is dependent on future disposition of real estate at a fair market value in excess of appraised value as of April 5, 2019. Given uncertainties surrounding Brexit and its potential impact on future real estate values, the Company concluded that the U.K. deferred tax asset did not meet the more likely than not threshold of being realizable. Therefore, a full valuation allowance was recorded against the UK deferred tax asset. During fiscal year 2022, the valuation allowance on the UK Basis Step-Up increased to $143.1 million, primarily due to current year depreciation expense.

During March 2018, Kennedy Wilson elected to treat KWE as a partnership for U.S. tax purposes retroactive to December 29, 2017. Due to unrealized foreign exchange losses not yet deductible for tax purposes and the consideration paid to acquire the non-controlling interests in KWE exceeding the book carrying value of the non-controlling interests in KWE, the Company’s tax basis in KWE exceeded its book carrying value at December 29, 2017, and every period thereafter. Prior to the election to treat KWE as a partnership, KWE was taxed as a controlled foreign corporation. As a controlled foreign corporation, the Company was precluded from recognizing a deferred tax asset for its tax basis in excess of book carrying value for its investment in KWE as the excess tax basis from the investment was not expected to reverse in the foreseeable future. However, as a result of the conversion of KWE to a partnership for U.S. tax purposes, the Company was required to record a deferred tax asset for its investment in KWE. As of December 31, 2018, the Company recorded a $98.3 million deferred tax asset related to its excess tax basis over book carrying value for its investment in KWE. As a significant portion of the excess tax basis would only reverse upon a strengthening of foreign currencies or upon a disposition of KWE, the Company determined that a valuation allowance of $98.3 million was required for the tax basis that was in excess of the Company’s carrying value for its investment in KWE as it did not meet the more likely than not recognition threshold. During the years ended December 31, 2021, 2020 and 2019, a portion of the excess tax basis over book basis in KWE reversed as a result of lower tax gains on sales of real estate. During the year ended December 31, 2022, our excess tax basis over book basis in KWE increased due to
unrealized foreign currency losses that are not currently deductible for tax. As of December 31, 2022, Kennedy Wilson’s excess tax basis in KWE and the related valuation allowance were $76.0 million and $75.4 million, respectively.
As of December 31, 2022, Kennedy Wilson had federal, California and other state net operating losses of $3.4 million, $90.9 million, and $11.2 million, respectively. The entirety of the $3.4 million federal net operating loss carryforwards were generated after December 31, 2017 and do not expire. However, such losses are only eligible to offset 80% of taxable income in a given year. California net operating losses begin to expire in 2034. As of December 31, 2022, Kennedy Wilson had $175.5 million of foreign net operating loss carryforwards, which have no expiration date. The Company has foreign tax credit carryforwards of $92.0 million, of which $0.5 million begin to expire in December 2023.
The Company's valuation allowance on deferred tax assets increased by $8.8 million in 2022 and increased by $52.7 million in 2021. The increase in the valuation allowance during 2022 primarily relates to additional valuation allowance recorded on the Company's UK Basis Step-Up deferred tax asset as a result of depreciation. The increase in the 2021 valuation allowance principally relates to remeasuring the UK Basis Step Up deferred tax asset from 19% to 25%.
In June 2021, the Company received a notification of a general tax inquiry being conducted by the Spanish tax authorities for several of its Spanish entities for tax years 2016 and 2017. As a result of the Spanish tax inquiry, management has reassessed the Company’s prior Spanish tax filing positions and the need to accrue additional taxes. Based on this reassessment, the Company believes that no additional Spanish tax accruals are required.
Kennedy Wilson’s federal and state income tax returns remain open to examination for the years 2019 through 2021 and 2017 through 2021, respectively. However, due to the existence of prior year loss carryovers, the IRS may examine any tax years for which the carryovers are used to offset future taxable income. Our foreign subsidiaries’ tax returns remain open to examination for the years 2018 through 2021. The Spanish loss carryovers may be subject to tax examination for a period of 10 years from the period in which such losses were generated.