Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Tax

Income Taxes

Provision 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,
	2020			2019			2018
	(Dollars in millions)
Current income tax benefit (provision)		$	(3,803)		$	(2,089)		$	114
Deferred income tax benefit (provision)(1)		729			(1,328)			(4,254)
Provision for federal income taxes		$	(3,074)		$	(3,417)		$	(4,140)

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

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

	For the Year Ended December 31,
	2020			2019			2018
Statutory corporate tax rate		21.0	%		21.0	%		21.0	%
Equity investments in affordable housing projects		(0.1)			(0.2)			(0.6)
Change in unrecognized tax benefits		—			(1.2)			—
Other		(0.2)			(0.2)			0.2
Effective tax rate		20.7	%		19.4	%		20.6	%

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 2020, 2019, and 2018 were impacted by the benefits of our investments in housing projects eligible for low-income housing tax credits. Our effective tax rate for 2019 was also impacted by the favorable resolution of our uncertain tax position which reduced our provision for federal income taxes by $205 million.

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, 2020, 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; and

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

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

	As of December 31,
	2020			2019
	(Dollars in millions)
Deferred tax assets:
Mortgage and mortgage-related assets		$	8,241		$	9,290
Allowance for loan losses and basis in acquired property, net		1,798			1,240
Debt and derivative instruments		526			627
Partnership and other equity investments		129			152
Interest-only securities		2,561			788
Total deferred tax assets		13,255			12,097
Deferred tax liabilities:
Unrealized gains on AFS securities, net		20			26
Other, net		288			161
Total deferred tax liabilities		308			187
Deferred tax assets, net		$	12,947		$	11,910

Unrecognized Tax Benefits

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

	For the Year Ended December 31,
	2020			2019			2018
	(Dollars in millions)
Unrecognized tax benefits as of January 1		$	—		$	416		$	514
Gross decreases - tax positions in current year		—			—			(98)
Gross decreases - tax positions in prior years		—			(416)			—
Unrecognized tax benefits as of December 31(1)		$	—		$	—		$	416

(1)Amount excludes tax credits of $151 million as of December 31, 2018. We had no unrecognized tax benefits as of December 31, 2020 and December 31, 2019.

Our tax years 2016 through 2019 remain open to examination by the IRS.