Income Tax Considerations (Tables)

12 Months Ended

Dec. 31, 2016

The following table reconciles net income adjusted for noncontrolling interests to REIT taxable income (in thousands):



	Year Ended December 31,
	2016			2015			2014
Net income adjusted for noncontrolling interests	$	238,933		$	174,352		$	288,008
Net (income) loss of taxable REIT subsidiary included above	(14,497		)	340			(4,092		)
Net income from REIT operations	224,436			174,692			283,916
Book depreciation and amortization including discontinued operations	162,534			145,940			150,616
Tax depreciation and amortization	(104,734		)	(87,416		)	(90,328		)
Book/tax difference on gains/losses from capital transactions	(64,917		)	(53,902		)	(87,387		)
Deferred/prepaid/above and below-market rents, net	(13,114		)	(5,375		)	(3,617		)
Impairment loss from REIT operations including discontinued operations	369			1,536			942
Other book/tax differences, net	(2,694		)	(1,679		)	(6,399		)
REIT taxable income	201,880			173,796			247,743
Dividends paid deduction⁽¹⁾	(201,880		)	(174,628		)	(247,743		)
Dividends paid in excess of taxable income	$	—		$	(832	)	$	—

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(1)	For 2016 and 2014, the dividends paid deduction includes designated dividends of $16.8 million and $114.0 million from 2017 and 2015, respectively.

For federal income tax purposes, the cash dividends distributed to common shareholders are characterized as follows:



	Year Ended December 31,
	2016		2015		2014
Ordinary income	80.7	%	92.7	%	54.0	%
Capital gain distributions	19.3	%	4.3	%	46.0	%
Return of capital (nontaxable distribution)	—	%	3.0	%	—	%
Total	100.0	%	100.0	%	100.0	%

Our deferred tax assets and liabilities, including a valuation allowance, consisted of the following (in thousands):



	December 31,
	2016			2015
Deferred tax assets:
Impairment loss ⁽¹⁾	$	13,476		$	13,538
Allowance on other assets	117			100
Interest expense	9,246			11,707
Net operating loss carryforwards ⁽²⁾	8,413			10,071
Straight-line rentals	813			337
Book-tax basis differential	4,380			3,777
Other	348			421
Total deferred tax assets	36,793			39,951
Valuation allowance ⁽³⁾	(25,979		)	(27,230		)
Total deferred tax assets, net of allowance	$	10,814		$	12,721
Deferred tax liabilities:
Book-tax basis differential ⁽¹⁾	$	10,998		$	7,205
Other	553			333
Total deferred tax liabilities	$	11,551		$	7,538

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(1)	Impairment losses and book-tax basis differential liabilities will not be recognized until the related properties are sold. Realization of impairment losses is dependent upon generating sufficient taxable income in the year the property is sold.


(2)	We have net operating loss carryforwards of $23.7 million that expire between the years of 2029 and 2034.


(3)	Management believes it is more likely than not that a portion of the deferred tax assets, which primarily consists of impairment losses, interest expense and net operating losses, will not be realized and established a valuation allowance. However, the amount of the deferred tax asset considered realizable could be reduced if estimates of future taxable income are reduced.

We are subject to federal, state and local income taxes and have recorded an income tax provision (benefit) as follows (in thousands):



	Year Ended December 31,
	2016			2015			2014
Net income (loss) before taxes of taxable REIT subsidiary	$	20,295		$	(989	)	$	1,446
Federal provision (benefit) at statutory rate of 35%	$	7,103		$	(346	)	$	506
Valuation allowance decrease	(1,251		)	(309		)	(3,003		)
Other	(54		)	6			(149		)
Federal income tax provision (benefit) of taxable REIT subsidiary ⁽¹⁾	5,798			(649		)	(2,646		)
Texas franchise tax ⁽²⁾	1,058			701			1,403
Total	$	6,856		$	52		$	(1,243	)

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(1)	All periods presented are open for examination by the IRS.


(2)	For all periods presented, amounts include the effects that are reported in discontinued operations. See Note 14 for additional information.