NOTE 9 — INCOME TAXES

Capstead REIT and a subsidiary for which the Company has elected taxable REIT subsidiary status file separate tax returns in the U.S. federal and various state jurisdictions, where applicable. Provided Capstead REIT remains qualified as a REIT and all its taxable income is distributed to stockholders within allowable time limits, no income taxes are due on this income. Accordingly, no provision has been made for income taxes for Capstead REIT. Taxable income of the taxable REIT subsidiary is fully taxable and provision is made for any resulting income taxes. With few exceptions, the Company is no longer subject to examination by federal, state or local tax authorities for years before 2008. Capstead's effective tax rate differs substantially from statutory federal income tax rates primarily due to the benefit of Capstead REIT's status as a REIT, as illustrated below, along with other items affecting the Company's effective tax rate (in thousands):


	*Year Ended December 31*
	*2011*			*2010*			*2009*
Income taxes computed at the federal statutory rate	$	37,171		$	44,414		$	45,242
Benefit of REIT status		(37,183	)		(44,437	)		(45,237	)

Income taxes computed on income of Capstead's sole taxable REIT subsidiary		(12	)		(23	)		5
Change in net deferred income tax assets		22			23			(6	)
Other		(10	)		–			1

Income tax provision	$	–		$	–		$	–

No income taxes were paid during 2011, 2010 or 2009. A tax refund of $4,000 was received in 2010 pertaining to taxes paid in 2003. Significant components of the Company's taxable REIT subsidiary's deferred income tax assets and liabilities were as follows (in thousands):


	*December 31*
	*2011*		*2010*
Deferred income tax assets:
Alternative minimum tax credit ^(a)	$	1,940	$	1,940
Net operating loss carryforwards ^(b)		60		36
Other		23		25

		2,023		2,001
Deferred income tax liabilities		–		–

Net deferred tax assets	$	2,023	$	2,001

Valuation allowance ^(c)	$	2,023	$	2,001

(a) Alternative tax credit carryforwards can be utilized to offset payment of federal income taxes on future taxable income, if any, earned by this subsidiary, subject to certain limitations.

(b) Excludes $3.4 million in remaining net operating loss carryforwards which expire after 2019. To the extent these carryforwards are utilized in future periods, the benefit will reduce actual taxes payable.

(c) Because this subsidiary is not expected to earn significant amounts of taxable income, related net deferred tax assets are fully reserved at December 31, 2011.