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INCOME TAXES
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
INCOME TAXES INCOME TAXES
 
We have elected to be taxed as a REIT. As a REIT, we are generally not subject to corporate level income taxes on taxable income we distribute to our shareholders. We believe we have met the annual REIT distribution requirement by distribution of at least 90% of our taxable income to our shareholders.

Income related to our TRSs is subject to federal, state and local taxes at applicable tax rates. Our consolidated tax provision includes the income tax provision related to the operations of the TRSs as well as state and local income taxes related to the Operating Partnership. Due to the adverse effects of the Pandemic, certain of our TRSs have incurred operating losses and are expected to be in a cumulative loss for the foreseeable future. As such, the realizability of our deferred tax assets at December 31, 2021 is not reasonably assured. Therefore, we have recorded a valuation allowance against substantially all of our deferred tax assets at December 31, 2021.

The components of income tax expense (benefit) for the years ended December 31, 2021, 2020, and 2019 are as follows (in thousands):
 
 202120202019
Current:   
Federal$1,036 $(904)$869 
State and local456 224 643 
Deferred:   
Federal(19)1,548 (32)
State and local— 508 20 
Income tax expense$1,473 $1,376 $1,500 
 
Below is a reconciliation between the provision for income taxes and the amounts computed by applying the federal statutory income tax rate to the income or loss before taxes:
 
 202120202019
Statutory federal income tax provision$(14,093)$(31,052)$17,608 
Nontaxable income of the REITs16,812 19,963 (16,996)
State income taxes, net of federal tax benefit891 (3,079)568 
Provision to return and deferred adjustment— (16)(6)
Effect of permanent differences and other99 319 326 
Change in valuation allowance(2,236)15,241 — 
Income tax provision$1,473 $1,376 $1,500 

The Company evaluates its deferred tax assets each reporting period to determine if it is more-likely-than-not that those assets will be realized. In its evaluation, the Company assesses available positive and negative evidence to estimate whether sufficient future taxable income will be generated to permit use of the Company’s existing deferred tax assets. At December 31, 2021, certain TRSs had a three-year cumulative loss. As such, realizability of the Company's deferred tax assets is not reasonably assured. Therefore, a valuation allowance of $13.0 million was recorded against the balance of deferred tax assets at December 31, 2021.

Deferred tax assets and liabilities are included within Other assets in the accompanying Consolidated Balance Sheets.

Significant components of our TRSs deferred tax assets (liabilities) are as follows (in thousands):

 
 20212020
Tax carryforwards$11,251 $13,521 
Accrued expenses1,704 1,537 
Other71 185 
Valuation allowance(13,005)(15,241)
     Net deferred tax assets$21 $2 
Gross deferred tax assets$13,066 $15,267 
Gross deferred tax liabilities(40)(24)
Valuation allowance(13,005)(15,241)
     Net deferred tax assets$21 $2 
 
At December 31, 2021, our TRSs had federal net operating losses of $40.5 million which are not subject to expiration and state net operating losses of $41.9 million, which expire beginning in 2025. At December 31, 2021, Summit Hotel Properties Inc. and our Subsidiary REITs had federal net operating loss carryforwards of $54.7 million and $3.0 million, respectively, which are not subject to expiration.
 
We had no unrecognized tax benefits at December 31, 2021 or in the three year period then ended. We expect no significant increase or decrease in unrecognized tax benefits due to changes in tax positions within one year of December 31, 2021. We have no material interest or penalties relating to unrecognized tax benefits in the Consolidated Statements of Operations for the years ended December 31, 2021, 2020 or 2019 or in the Consolidated Balance Sheets as of December 31, 2021 or 2020.
 
We file U.S. and state income tax returns in jurisdictions with varying statutes of limitations. In general, we are not subject to tax examinations by tax authorities for years before 2017.

The American Rescue Plan Act of 2021 was signed into law on March 11, 2021. Some of the key income tax provisions include:

•An extension of the employee retention tax credit through September 30, 2021. To be eligible for the credit in 2021, an organization’s gross receipts must be less than 80% of the same quarter in 2019. The credit is calculated based on 70% of qualifying wages, capped at $10,000 of compensation each quarter in 2021. We recorded a credit totaling $1.1 million for the year ended December 31, 2021.
•Expanded limits on executive compensation deductions. Section 162(m) limits the deduction for compensation paid to each covered employee to $1 million for public companies. Covered employees generally include the CEO, CFO, and the next three highest paid officers as determined under the SEC rules. For tax years after December 31, 2026, Section 162(m) applies to the CEO, CFO, and the next five highest paid employees.

Characterization of Distributions

For income tax purposes, distributions paid consist of ordinary income and capital gains or a combination thereof. For the years ended December 31, 2021, 2020, and 2019 distributions paid per share were characterized as follows (unaudited):

202120202019
Amount%Amount%Amount%
Common Stock
Ordinary income$— — %$0.0944 52.46 %$0.6132 85.16 %
Capital gain distributions— — %— — %0.1068 14.84 %
Return of capital— — %0.0856 47.54 %— — %
Total$— — %$0.1800 100.00 %$0.7200 100.00 %
Preferred Stock - Series D
Ordinary income$— — %$0.4031 25.00 %$1.3732 85.16 %
Capital gain distributions— — %— — %0.2393 14.84 %
Return of capital1.2228 100.00 %1.2094 75.00 %— — %
Total$1.2228 100.00 %$1.6125 100.00 %$1.6125 100.00 %
Preferred Stock - Series E
Ordinary income$— — %$0.3906 25.00 %$1.3307 85.16 %
Capital gain distributions— — %— — %0.2318 14.84 %
Return of capital1.5625 100.00 %1.1719 75.00 %— — %
Total$1.5625 100.00 %$1.5625 100.00 %$1.5625 100.00 %
Preferred Stock - Series F
Ordinary income$— — %$— — %$— — %
Capital gain distributions— — %— — %— — %
Return of capital0.4406 100.00 %— — %— — %
Total$0.4406 100.00 %$— — %$— — %

The 2021 Preferred D, Preferred E and Preferred F dividends were 100.0% return of capital.

The common dividends that were taxable to our stockholders in 2020 were 52.46% ordinary income and 47.54% return of capital. The 2020 Preferred D and Preferred E dividends were 25.0% ordinary income and 75.0% return of capital. The 2020 ordinary income dividends are eligible for the 20% deduction provided by Section 199A for qualified REIT dividends.

The dividends that were taxable to our stockholders in 2019 were 85.16% ordinary income and 14.84% capital gain distributions. The 2019 capital gain distribution was 100% related to unrecaptured Section 1250 gain. The 2019 ordinary income dividends are eligible for the 20% deduction provided by Section 199A for qualified REIT dividends.