Income Taxes

12 Months Ended

Dec. 31, 2018

Income TaxesProvision for Federal Income Taxes

We are subject to federal income tax, but we are exempt from state and local income taxes. The following table displays the components of our provision for federal income taxes.



	For the Year Ended December 31,
	2018				2017				2016
	(Dollars in millions)
Current income tax benefit (provision)		$	114			$	600			$	(2,014	)
Deferred income tax provision⁽¹⁾		(4,254		)		(16,584		)		(4,006		)
Provision for federal income taxes		$	(4,140	)		$	(15,984	)		$	(6,020	)


⁽¹⁾	Amount excludes the current income tax effect of items recognized directly in “Fannie Mae stockholders’ equity (deficit).”

The following table displays the difference between the statutory corporate tax rate and our effective tax rate.



	For the Year Ended December 31,
	2018				2017				2016
Statutory corporate tax rate		21.0		%		35.0		%		35.0		%
Equity investments in affordable housing projects		(0.6	)			(1.4	)			(1.9	)
Effect of corporate tax rate change		—				53.6				—
Other		0.2				(0.6	)			(0.3	)
Effective tax rate		20.6		%		86.6		%		32.8		%

Our effective tax rate is the provision for federal income taxes expressed as a percentage of income or loss before federal income taxes. Our effective tax rates for the years 2018, 2017 and 2016 were impacted by the benefits of our investments in housing projects eligible for low-income housing tax credits. Our effective tax rate in 2017 was also impacted by the remeasurement of our net deferred tax assets in the fourth quarter of 2017 as a result of the federal statutory corporate tax rate change from 35% to 21%.Deferred Tax Assets and Liabilities

We evaluate our deferred tax assets for recoverability using a consistent approach which considers the relative impact of negative and positive evidence, including our historical profitability and projections of future taxable income.

As of December 31, 2018, we continued to conclude that the positive evidence in favor of the recoverability of our deferred tax assets outweighed the negative evidence and that it is more likely than not that our deferred tax assets will be realized. Our framework for assessing the recoverability of deferred tax assets requires us to weigh all available evidence, to the extent it exists, including:


•	the sustainability of recent profitability required to realize the deferred tax assets;


•	the cumulative net income or losses in our consolidated statements of operations and comprehensive income in recent years;


•	unsettled circumstances that, if unfavorably resolved, would adversely affect future operations and profit levels on a continuing basis in future years;


•	the funding available to us under the senior preferred stock purchase agreement; and


•	the carryforward periods for any tax credits.

The following table displays our deferred tax assets and deferred tax liabilities.



	As of December 31,
	2018			2017
	(Dollars in millions)
Deferred tax assets:
Mortgage and mortgage-related assets		$	9,285		$	10,397
Allowance for loan losses and basis in acquired property, net		2,065			2,286
Debt and derivative instruments		687			1,205
Partnership credits		161			1,695
Partnership and other equity investments		223			311
Other, net		840			1,621
Total deferred tax assets		13,261			17,515
Deferred tax liabilities:
Unrealized gains on AFS securities, net		73			165
Total deferred tax liabilities		73			165
Deferred tax assets, net		$	13,188		$	17,350

As of December 31, 2018, we had $161 million of partnership tax credit carryforwards that expire in various years through 2038 and $136 million of alternative minimum tax credit carryforwards that will be used by the year 2021.Unrecognized Tax Benefits

The following table displays the changes in our unrecognized tax benefits.



	For the Year Ended December 31,
	2018				2017			2016
	(Dollars in millions)
Unrecognized tax benefits as of January 1		$	514			$	—		$	—
Gross increases—tax positions in current year		—				514			—
Gross decreases—tax positions in current year		(98		)		—			—
Unrecognized tax benefits as of December 31⁽¹⁾		$	416			$	514		$	—


⁽¹⁾	Amount excludes tax credits of $151 million and $220 million as of December 31, 2018 and 2017, respectively.

If these tax positions were to resolve favorably, our effective tax would be reduced in future periods by $205 million. While it is reasonably possible that the amount of the unrecognized tax benefits could increase or decrease during the next twelve months, we believe it is unlikely that they will change by a material amount. We had no unrecognized tax benefits as of December 31, 2016.

Our tax years 2007 through 2017 remain open to assessment by the IRS.