Income Taxes

3 Months Ended

Feb. 29, 2020

Income Tax Expense. Our income tax expense and effective tax rates were as follows (dollars in thousands):



	Three Months Ended
	February 29, 2020			February 28, 2019
Income tax expense	$	9,100		$	4,500
Effective tax rate	13.2		%	13.0		%

Our income tax expense and effective tax rate for the three months ended February 29, 2020 included the favorable effects of $5.6 million of excess tax benefits related to stock-based compensation and $4.0 million of federal energy tax credits that we earned from building energy-efficient homes. Our income tax expense and effective tax rate for the three months ended February 28, 2019 included the favorable impacts of a $3.3 million reversal of a deferred tax asset valuation allowance related to refundable alternative minimum tax credits and $2.0 million of excess tax benefits related to stock-based compensation, which were partly offset by $.8 million of other items.

The federal energy tax credits for the three months ended February 29, 2020 resulted from legislation enacted in December 2019, which among other things, extended the availability of a business tax credit for building new energy-efficient homes through December 31, 2020. Prior to this legislation, the tax credit expired on December 31, 2017. This extension is expected to benefit our income tax provision in future periods.

Deferred Tax Asset Valuation Allowance. We evaluate our deferred tax assets quarterly to determine if adjustments to our valuation allowance are required based on the consideration of all available positive and negative evidence using a “more likely than not” standard with respect to whether deferred tax assets will be realized. Our evaluation considers, among other factors, our historical operating results, our expectation of future profitability, the duration of the applicable statutory carryforward periods, and conditions in the housing market and the broader economy. The ultimate realization of our deferred tax assets depends primarily on our ability to generate future taxable income during the periods in which the related deferred tax assets become deductible. The value of our deferred tax assets depends on applicable income tax rates.

Our deferred tax assets of $331.4 million as of February 29, 2020 and $383.7 million as of November 30, 2019 were both partly offset by valuation allowances of $19.2 million. Our deferred tax assets as of February 29, 2020 reflected the reclassification of $43.3 million of alternative minimum tax credits from deferred tax assets to receivables due to the filing of our 2019 federal income tax return claiming a refund of these credits. The deferred tax asset valuation allowances as of February 29, 2020 and November 30, 2019 were primarily related to certain state net operating losses that had not met the “more likely than not” realization standard at those dates. Based on the evaluation of our deferred tax assets as of February 29, 2020, we determined that most of our deferred tax assets would be realized. Therefore, no adjustments to our deferred tax valuation allowance were needed for the three months ended February 29, 2020.

We will continue to evaluate both the positive and negative evidence on a quarterly basis in determining the need for a valuation allowance with respect to our deferred tax assets. The accounting for deferred tax assets is based upon estimates of future results. Changes in positive and negative evidence, including differences between estimated and actual results, could result in changes in the valuation of our deferred tax assets that could have a material impact on our consolidated financial statements. Changes in existing federal and state tax laws and corporate income tax rates could also affect actual tax results and the realization of deferred tax assets over time.

Unrecognized Tax Benefits. As of February 29, 2020 and November 30, 2019, we had no gross unrecognized tax benefits. The fiscal years ending 2016 and later remain open to federal examinations, while 2015 and later remain open to state examinations.