Income taxes and tax receivable agreement

6 Months Ended

Jun. 30, 2026

Income Tax Disclosure [Abstract]

Income taxes and tax receivable agreement

Income taxes and tax receivable agreement:

Smith Douglas Homes Corp. is taxed as a subchapter C corporation and is subject to federal and state income taxes. Smith Douglas Homes Corp.’s sole material asset is its ownership interest in Smith Douglas Holdings LLC, which is a limited liability company that is taxed as a partnership for U.S. federal and certain state and local income tax purposes. Smith Douglas Holdings LLC’s net taxable income and related tax credits, if any, are passed through to its members and included in the members’ tax returns. The income tax burden on the earnings taxed to the non-controlling interest holders is not reported by the Company in its unaudited condensed consolidated financial statements under U.S. GAAP.

The estimated annual effective tax rate for the year ending December 31, 2026 is 5.4%. The difference between the estimated annual effective income tax rate and the U.S. federal statutory rate is primarily due to: (1) income attributable to non-controlling interests which is not taxable to Smith Douglas Homes Corp., (2) Smith Douglas Holdings LLC’s election to be taxed at the entity level, and (3) state income taxes.

The Company’s income tax provision was $0.1 million and $0.4 million for the three and six months ended June 30, 2026, respectively, and $0.7 million and $1.6 million for the three and six months ended June 30, 2025, respectively.

The Company recognizes deferred tax assets to the extent it believes these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent results of operations. After considering all those factors, as of June 30, 2026, the Company has recorded a valuation allowance of $12.3 million for certain deferred tax assets the Company has determined are not more likely than not to be realized.

As each of the Continuing Equity Owners elects to convert their LLC Interests into Class A common stock, Smith Douglas Homes Corp. will succeed to their aggregate historical tax basis which will create a net tax benefit to the Company. These

tax benefits are expected to be amortized over 15.0 years pursuant to Sections 743(b) and 197 of the Code. The Company will only recognize a deferred tax asset for financial reporting purposes when it is more likely than not that the tax benefit will be realized.

In connection with the IPO and related transactions, the Company entered into a tax receivable agreement (TRA) with Smith Douglas Holdings LLC and the Continuing Equity Owners that will provide for the payment by Smith Douglas Homes Corp. to the Continuing Equity Owners of 85% of the amount of tax benefits, if any, that Smith Douglas Homes Corp. realizes (or in some circumstances is deemed to realize) related to the tax basis adjustments as such savings are realized. As of June 30, 2026, the Company has recorded a TRA liability of $9.4 million. During the three and six months ended June 30, 2026, the Company made payments under the TRA to the Continuing Equity Owners totaling zero and $0.5 million, respectively. No payments were made under the TRA during the three and six months ended June 30, 2025.