Income Taxes

12 Months Ended

Dec. 31, 2016

11. Income Taxes

The Company has formed TRSs that are C-corporations for federal income tax purposes and use the consolidated asset and liability method of accounting for income taxes. Tax return positions are recognized in the consolidated financial statements when they are “more-likely-than-not” to be sustained upon examination by the taxing authority. Deferred income tax assets and liabilities result from temporary differences. Temporary differences are differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements that will result in taxable or deductible amounts in future periods. A valuation allowance may be placed on deferred income tax assets, if it is determined that it is more likely than not that a deferred tax asset may not be realized.

No provision for income taxes has been made for the Company (other than each TRS) for the years ended December 31, 2016 and 2015 as it made an election to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code commencing with the taxable year ended December 31, 2011. Prior to January 1, 2011, the Company was subject to federal and state income taxes as it had not elected to be taxed as a REIT.

The TRSs had deferred tax assets of $2,605,000 and $1,345,000 as of December 31, 2016 and 2015, respectively, resulting from net operating loss carry-forwards. As of December 31, 2016, the TRSs had net operating loss carry-forwards of approximately $6,495,000 expiring in 2033, 2034, 2035 and 2036.

As of December 31, 2016, the Company had operating loss carry-forwards of $355,800 expiring in 2033.

The income tax expense (benefit) for the years ended December 31, 2016 and 2015 consisted of the following:


	Years ended December 31,
	2016			2015
Current expense	$	205,577		$	266,000
Deferred benefit		(1,260,000	)		(758,000	)
Total income tax benefit	$	(1,054,423	)	$	(492,000	)

Federal	$	(1,211,000	)	$	(531,500	)
State		156,577			39,500
Total income tax benefit	$	(1,054,423	)	$	(492,000	)

The reconciliation of income tax expense (benefit) to the expected amount computed by applying federal statutory rate to income (loss) before income taxes is as follows:

	Years ended December 31,
	2016			2015
Expected federal tax expense (benefit) at statutory rate	$	(1,959,000	)	$	2,319,000
Tax impact of REIT election		748,000			(2,850,500	)
Expected tax benefit at TRS		(1,211,000	)		(531,500	)
State income tax expense, net of federal tax benefit		156,577			39,500
Income tax benefit	$	(1,054,423	)	$	(492,000	)

Moody National REIT I, Inc. 10-K