Income Taxes

12 Months Ended

Dec. 31, 2020

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The provision for income taxes consists of the following:

	Year Ended December 31,
	2020		2019		2018
Current:
Federal	$	151,532	$	115,610	$	126,358
State	42,769		34,586		37,038
Deferred:
Federal	(13,289)		(2,195)		138
State	(4,227)		(745)		(999)
Income tax expense	$	176,785	$	147,256	$	162,535

Deferred income taxes on our consolidated balance sheets were comprised of the following:

	December 31,
	2020		2019
Deferred tax assets:
Other accrued expenses and contract land deposit reserve	$	67,520	$	52,726
Deferred compensation	4,608		4,635
Equity-based compensation expense	41,839		42,043
Inventory	13,118		10,530
Unrecognized tax benefit	11,705		12,355
Other	8,639		8,289
Total deferred tax assets	147,429		130,578
Less: Deferred tax liabilities	7,184		7,902
Net deferred tax asset	$	140,245	$	122,676

Deferred tax assets arise principally as a result of various accruals required for financial reporting purposes and equity-based compensation expense, which are not currently deductible for tax return purposes.

Management believes that we will have sufficient future taxable income to make it more likely than not that the net deferred tax assets will be realized. Federal taxable income is estimated to be approximately $768,700 for the year ended December 31, 2020, and was $640,243 for the year ended December 31, 2019.

A reconciliation of income taxes computed at the federal statutory rate (21%) to income tax expense is as follows:

	Year Ended December 31,
	2020		2019		2018
Income taxes computed at the federal statutory rate	$	226,387	$	215,417	$	201,544
State income taxes, net of federal income tax benefit (1)	47,469		45,770		42,944
Excess tax benefits from equity-based compensation	(92,234)		(101,466)		(77,478)
Remeasurement of net deferred tax assets due to enactment of Tax Cut and Jobs Act	—		—		(497)
Other, net (2)	(4,837)		(12,465)		(3,978)
Income tax expense	$	176,785	$	147,256	$	162,535

(1)Excludes state excess tax benefits from equity-based compensation included in the line below.

(2)    Primarily attributable to tax benefits from certain energy credits for the years ended December 31, 2020 and 2019.

Our effective tax rate in 2020, 2019 and 2018 was 16.40%, 14.36% and 16.94%, respectively.

We file a consolidated U.S. federal income tax return, as well as state and local tax returns in all jurisdictions where we maintain operations. With few exceptions, we are no longer subject to income tax examinations by tax authorities for years prior to 2017.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	Year Ended December 31,
	2020		2019
Balance at beginning of year	$	39,356	$	43,418
Additions based on tax positions related to the current year	3,155		2,941
Reductions for tax positions of prior years	(5,694)		(7,003)
Settlements	—		—
Balance at end of year	$	36,817	$	39,356

If recognized, the total amount of unrecognized tax benefits that would affect the effective tax rate (net of the federal tax benefit) is $29,085 as of December 31, 2020.

We recognize interest related to unrecognized tax benefits as a component of income tax expense. For the years ended December 31, 2020, 2019, and 2018, we recognized a net decrease in accrued interest on unrecognized tax benefits in the amount of $420, $1,467 and $1,384, respectively. As of December 31, 2020 and 2019, we had a total of $15,304 and $15,724, respectively, of accrued interest on unrecognized tax benefits which are included in “Accrued expenses and other liabilities” on the accompanying consolidated balance sheets. We believe that within the next 12 months, it is reasonably possible that the unrecognized tax benefits as of December 31, 2020 will be reduced by approximately $7,700 due to statute expiration and effectively settled positions in various state jurisdictions.