INCOME TAXES

12 Months Ended

Dec. 31, 2015

INCOME TAXES

INCOME TAXES

NOTE 8.            INCOME TAXES

IOT is a “C” Corporation for U.S. federal income tax purposes and is included in the annual consolidated income tax return with TCI’s parent American Realty Investors, Inc (“ARL”) and its ultimate parent May Realty Holdings, Inc. (“MRHI”). For 2015, ARL, TCI and IOT had combined net taxable income and IOT recorded a current tax expense of $807,000.  The benefit or expense is calculated based on the amount of losses absorbed by taxable income multiplied by the statutory rate of 35% per the tax sharing and compensating agreements.

Current income tax expense is attributable to (dollars in thousands): 

	2015		2014		2013
Income from continuing operations	$	2,306	$	2,505	$	8,574

The following table presents the principal reasons for the differences between the Company’s effective tax rate and the United States statutory income tax rate of 35% (dollars in thousands):

	2015			2014			2013
Federal income tax at statutory rate	$	807		$	877		$	3,001
Gain on sale differences		1,324			—			—
Utilization of net operating loss and minimum tax credit carry forwards		—			—			—
Effective income tax rate		35	%		35	%		35	%

Deferred income taxes reflect the tax effects of temporary timing differences between carrying amounts of assets and liabilities reflected on the financial statements and the amounts used for income tax purposes. IOT’s tax basis in its net assets differs from the amount at which its net assets are reported for financial statement purposes, principally due to the accounting for gains and losses on property sales, and depreciation on owned properties. The tax effects of temporary differences and net operating loss carry forwards that give rise to the deferred tax assets are presented below (dollars in thousands):

	2015		2014			2013
Accumulated depreciation and amortization		---	$	(516	)	$	(514	)
Assets sold for tax, not yet recognized for book		740		---			---
Allowance for loss		694		694			694
Deferred tax asset	$	1,434	$	178		$	180
Less valuation allowance		---		---			---
Total deferred tax asset	$	1,434	$	178		$	180

In November 2015, IOT, ARL, and TCI sold various tracts of land to a third party in exchange for cash and a promissory note.  The Purchaser’s initial and ongoing investment was inadequate, and as a result, the transaction is recorded using the deposit method.  For tax purposes, the sale is recognized under the installment method.  The deferred tax asset at December 31, 2015 is approximately $1.4 million and is included in other assets.  For years prior to December 31, 2015, IOT had deferred tax assets of approximately $178,000 and $180,000 as of December 31, 2014 and 2013, respectively on a stand-alone basis.

In 2014, the company used approximately $2.7 million of losses from the ARL consolidated group.  In 2013, IOT used approximately $8.7 million of losses from the consolidated group. On a stand-alone basis, there are no NOL carryforwards for IOT.  However, the Federal Consolidated group for which IOT is a member has a NOL carryforward of approximately $145 million as of December 31, 2014, which is more than sufficient to absorb IOT’s taxable income for 2015.  Of that $145 million of NOL carryforward, approximately $2.8 million of it is attributable to IOT under Federal Income tax allocation rules.  The alternative minimum tax credit balance increased in to approximately $354,000.  The credit has no expiration date.