INCOME TAXES

For income tax purposes, dividends paid to holders of Common Stock primarily consist of ordinary income, return of capital, capital gains, qualified dividends and un-recaptured Section 1250 gains, or a combination thereof. For the years ended December 31, 2013, 2012 and 2011, dividends per share held for the entire year were estimated to be taxable as follows:



	2013				2012				2011
	Amount		Percentage		Amount		Percentage		Amount		Percentage
Ordinary income	$	2.36	84.90	%	$	2.16	81.64	%	$	1.90	75.59	%
Capital gains	0.17		6.23	%	0.08		3.09	%	0.10		3.97	%
Return of capital	—		—	%	—		—	%	0.28		11.21	%
Un-recaptured Section 1250 gain	0.25		8.87	%	0.40		15.27	%	0.23		9.23	%
	$	2.78	100.00	%	$	2.64	100.00	%	$	2.51	100.00	%

We designated the per share amounts above as capital gain dividends in accordance with the requirements of the Code. The difference between net income available to common shareholders for financial reporting purposes and taxable income before dividend deductions relates primarily to temporary differences such as depreciation and amortization, and deferral of gains on sold properties utilizing like kind exchanges under IRC section 1031.

Merger and Restructuring

On September 16, 2013, MAA formed MAA Arkansas REIT, LLC or MAA Ark through, the contribution of 11 properties owned directly by MAA. The transaction is intended to qualify as a tax-free contribution pursuant to IRC Section 351, and MAA Ark will elect REIT status for 2013.

As discussed above, on October 1, 2013, we completed our merger with Colonial. Pursuant to the merger agreement, OP Merger Sub merged with and into Colonial LP, with Colonial LP being the surviving entity of the merger and becoming a wholly-owned indirect subsidiary of MAALP. We believe that this transaction constitutes a tax free merger under IRC section 708. Immediately thereafter, MAA and Colonial combined through a merger of Colonial with and into MAA, with MAA surviving the merger. We believe that this merger constitutes a tax free merger under IRC section 368(a). As a result of the tax free merger treatment, the merger transactions did not result in the recognition of gain to any holder of MAA, Colonial, MAALP, or Colonial LP.

On October 1, 2013, MAA re-identified hedging transactions for federal income tax purposes according to Reg. §1.1221-2(f) and all relevant state income tax purposes that were previously held by Colonial. This re-identification was made because the tax identity of Colonial changed by virtue of the merger into MAA. There were four hedging transactions re-identified for tax purposes, including the $50 million bullet interest rate swap with Wells Fargo Bank, N.A. ("Wells Fargo") with a fixed interest rate of 2.465%, the $200 million bullet interest rate swap with Wells Fargo with a fixed interest rate of 2.576%, the $50 million bullet interest rate swap with Wells Fargo with a fixed interest rate of 1.064%, and the $100 million bullet interest rate swap with Wells Fargo with a fixed interest rate of 1.133%.

Taxable REIT subsidiaries

We acquired the operations of a taxable REIT subsidiary, Colonial Properties Services, Inc., or CPSI, through our merger with Colonial. As a result, CPSI’s tax attributes are now included in the MAA consolidated financial statements. As discussed above, a TRS is an entity which is not entitled to a dividends paid deduction and is subject to Federal, state, and local income taxes. CPSI provides property development, construction services, leasing and management services for joint venture and third-party owned properties and administrative services to the company and engages in for-sale development activity. We generally reimburse CPSI for payroll and other costs incurred in providing services to us. All inter-company transactions are eliminated in accompanying consolidated financial statements. We also hold certain undeveloped land through another TRS, MAA Copper Ridge, Inc. During the years ended December 31, 2013, 2012, and 2011, our TRSs recognized no income tax expense/(benefit).

CPSI uses the liability method of accounting for income taxes. Deferred income tax assets and liabilities result from temporary differences. Temporary differences are differences between tax bases of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future periods. The net deferred tax assets of the Company, consisting of the net deferred tax assets of CPSI and the net-loss deferred tax asset acquired by MAA from Colonial, have been fully offset by a valuation allowance. We record a valuation allowance against our net deferred tax assets when we determine that based on the weight of available evidence, it is more likely than not that our net deferred tax assets will not be realized. We considered the four sources of taxable income that should be considered when determining whether a valuation allowance is required (from least to most subjective):


•	taxable income in prior carryback years, if carryback is permitted under the tax law;


•	future reversals of existing taxable temporary differences (i.e., offset gross deferred tax assets against gross deferred tax liabilities);


•	tax planning strategies; and


•	future taxable income exclusive of reversing temporary differences and carryforwards.

The components of CPSI’s deferred income tax assets and liabilities were as follows (dollars in thousands):



	December 31, 2013
Deferred tax assets:
Real estate asset basis differences	$	27,014
Deferred revenue	19
Deferred expenses	15,261
Net operating loss carryforward	29,864
Accrued liabilities	4,168
	$	76,326
Deferred tax liabilities:
Real estate asset basis differences	(1,631		)
	$	(1,631	)
Net deferred tax assets, before valuation allowance	$	74,695
Valuation allowance	(74,695		)
Net deferred tax assets, included in other assets	$	—

At December 31, 2013, CPSI had net operating loss carryforwards, or NOLs of approximately $68.8 million for income tax purposes that expire in years 2030 to 2033. Utilization of the Company’s net operating loss carryforwards is subject to an annual limitation due to ownership change limitations provided by Section 382 of the Internal Revenue Code of 1986, as amended, and similar state provisions. The annual limitations may result in the expiration of net operating loss carryforwards before utilization. CPSI generated approximately $1.5 million of losses for the post acquisition period ended December 31, 2013. As of December 31, 2013, MAA held net operating loss carryforwards of approximately $46.3 million for income tax purposes that expire in years 2018 to 2030. We may use these NOLs to offset all or a portion of the taxable income generated at the REIT level.

The Company's reserve for uncertain tax positions was immaterial for the years ended December 31, 2013 and 2012. The Company accrues interest on unrecognized tax benefits as a component of income tax expense.

For the years ended December 31, 2013, 2012, 2011, other expenses include estimated state franchise and other taxes, including franchise taxes in North Carolina and Tennessee. We now present the Texas margin-based tax as an income tax expense.

Tax years 2010 through 2013 are subject to examination. No tax examination is currently in process.