Income Taxes

As of March 31, 2013, the Company had alternative minimum tax (“AMT”) credit carryforwards of approximately $197,000, available to reduce future federal income taxes over an indefinite period and $374,000 of accrued vacation to be recognized in 2013. In addition, there were real estate inventory basis differences of $180,000, which will be recognized as residential units are sold and retainage payables of $574,000, which will be recognized throughout 2013 when paid to our subcontractors. The current deferred tax asset decreased to $704,000 as of March 31, 2013 from $773,000 as of December 31, 2012. The non-current deferred tax liability increased to $4.5 million as of March 31, 2013 from $4.0 million as of December 31, 2012 due to additional tax depreciation in excess of book depreciation.

The carrying amounts of deferred tax assets are reduced by a valuation allowance, if based on the available evidence it is more likely than not such assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which the deferred tax assets are expected to be recovered or settled. In the assessment for a valuation allowance, appropriate consideration is given to all positive and negative evidence related to the realization of the deferred tax assets. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability, the duration of statutory carryforward periods, experience with loss carryforwards expiring unused, and tax planning alternatives. If the Company determines it will not be able to realize all or part of the deferred tax assets, a valuation allowance would be recorded to reduce deferred tax assets to the amount that is more likely than not to be realized.

Based on assumptions with respect to forecasts of future taxable income and tax planning, among others, the Company anticipates being able to generate sufficient taxable income to utilize the deferred tax assets. Therefore, the Company has not recorded a valuation allowance against deferred tax assets. The minimum amount of future taxable income required to be generated to fully realize the deferred tax assets as of March 31, 2013 is approximately $2.0 million.

The following table presents the provision for income tax and effective tax rate for the three months ended March 31, 2013 and 2012:



	2013			2012
Income tax provision	$	1,045,111		$	51,232
Effective income tax rate	36.8		%	1.9		%

The Company's expected tax rate for the year ending December 31, 2013, which was calculated based on the estimated annual operating results for the year, is 36.8%. The expected tax rate differs from the federal statutory rate of 34% primarily due to state income taxes.

The effective tax rate for the three months ended March 31, 2013 was 36.8% and reflects the annual expected tax rate.

The effective tax rate for the three months ended March 31, 2012 was 1.9%. The income tax provision consisted of state income tax expense attributable to a subsidiary and did not reflect the federal statutory rate of 34%, due to previously unrecognized NOL and AMT credit carryforwards available to offset taxable income. Due to the impact of the deferred tax valuation allowance and the volatility in estimated future deferred taxes, the effective tax rate is based on a year-to-date income tax calculation.

The Company has gross unrecognized tax benefits of $9,000 as of both March 31, 2013 and December 31, 2012. The Company believes that it is reasonably possible that the liability for unrecognized tax benefits related to certain state income tax matters may be settled within the next twelve months. The federal statute of limitation has expired for tax years prior to 2008 and relevant state statutes vary. The Company is currently not under any income tax audits or examinations and does not expect the assessment of any significant additional tax in excess of amounts reserved.

The Company accrues interest and penalties related to unrecognized tax benefits as interest expense and other general and administrative expenses, respectively, and not as a component of income taxes.