v3.26.1
Income Taxes
 6 Months Ended
Jun. 30, 2026
Income Taxes [Abstract]  
Income Taxes
Note 14 — Income Taxes

The Company elected to be taxed as a REIT under Code Sections 856 through 860 beginning with its short taxable year ended December 31, 2013. As a REIT, the Company generally will not be subject to U.S. federal income tax to the extent that it distributes its taxable income to its stockholders. To maintain qualification as a REIT, the Company must distribute at least 90% of its annual REIT taxable income to its stockholders and meet certain other requirements such as assets it may hold, income it may generate and its stockholder composition. It is the Company’s policy to distribute all or substantially all of its REIT taxable income. To the extent there is any undistributed REIT taxable income at the end of a year, the Company can elect to distribute such shortfall within the next year as permitted by the Code.

Effective January 1, 2014, CHMI Solutions elected to be taxed as a corporation for U.S. federal income tax purposes; prior to this date, CHMI Solutions was a disregarded entity for U.S. federal income tax purposes. CHMI Solutions has jointly elected with the Company, the ultimate beneficial owner of CHMI Sub-REIT, to be treated as a TRS of the Company, and all activities conducted through CHMI Solutions and its wholly-owned subsidiary, Aurora, are subject to federal and state income taxes. CHMI Solutions files a consolidated tax return with Aurora and is fully taxed as a U.S. C-Corporation.

The state and local tax jurisdictions for which the Company is subject to tax filing obligations recognize the Company’s status as a REIT, and therefore, the Company generally does not pay income tax in such jurisdictions. CHMI Solutions and Aurora are subject to U.S. federal, state and local income taxes. All of the Company’s pre-tax book income is from U.S. domestic sources.


The components of the Company’s income tax expense (benefit) are as follows for the periods indicated below (dollars in thousands):
   
Three Months Ended June 30,
    
Six Months Ended June 30,
  
 
   2026     2025     2026     2025  
Deferred federal income tax expense
  
$
59
 
$
990
    
$
889
    
$
1,143
  
Deferred state income tax expense
    
8
   
131
      
117
      
151
  
Provision for Corporate Business Taxes
  
$
67
 
$
1,121
    
$
1,006
    
$
1,294
  


The following is a reconciliation of the statutory federal rate to the effective rate, for the periods indicated below (dollars in thousands):
   
Three Months Ended June 30,
    
Six Months Ended June 30,
  
 
   2026     2025     2026     2025  
Computed income tax expense (benefit) at federal rate
  
$
812
      
21.0
%
  
$
564
      
21.0
%
  
$
1,099
      
21.0
%
  
$
(868
)
    
21.0
%
State and local income taxes, net of federal income tax effect(B)
    
7
   
0.2
%
    
103
      
3.8
%
    
93
      
1.8
%
    
119
      
(2.9
)%
Nontaxable or nondeductible items
                                                                
REIT income not subject to tax expense (benefit)
    
(752
)
    
(19.5
)%
    
454
      
16.9
%
    
(186
)
    
(3.6
)%
    
2,043
      
(49.4
)%
Provision for Corporate Business Taxes/Effective Tax Rate(A)
  
$
67
   
1.7
%
  
$
1,121
      
41.7
%
  
$
1,006
      
19.2
%
  
$
1,294
      
(31.3
)%

(A)
The provision for income taxes is recorded at the TRS level.
(B)
The states that contribute to the majority (greater than 50%) of the tax effect in this category include California, Maryland and New York for 2026 and 2025, respectively.



The amount of cash taxes paid by the Company for the three-month and six-month period ended June 30, 2026 was $27 thousand and $29 thousand, respectively was primarily comprised of state related income taxes.


The Company’s consolidated balance sheets contain the following deferred tax assets and liabilities, which are recorded at the TRS level (dollars in thousands):
 
  
June 30, 2026
    
December 31, 2025
  
Deferred tax assets (liabilities)
            
Deferred tax - mortgage servicing rights
   $
 (14,777 )   $
 (11,580 )
Deferred tax - net operating loss
     22,378       20,303  
Deferred tax - other
      116
        -
  
Total net deferred tax assets
   $ 7,717     $ 8,723  


In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences become deductible. The Company had net operating losses (“NOLs”) of $96.7 million as of June 30, 2026, which were created subsequent to 2017 and can be carried forward indefinitely. As of June 30, 2026, the Company believes it is more likely than not that it will fully realize its deferred tax assets. Deferred tax assets are included in “Receivables and other assets” in the consolidated balance sheets.

 

Based on the Company’s evaluation, the Company has concluded that there are no significant liabilities for unrecognized tax benefits required to be reported in the Company’s consolidated financial statements. Additionally, there were no amounts accrued for penalties or interest as of or during the periods presented in these consolidated financial statements.

 

The Company’s 2024, 2023 and 2022 federal, state and local income tax returns remain open for examination by the relevant authorities.

 

Distributions to stockholders generally will be primarily taxable as ordinary income, although a portion of such distributions may be designated as qualified dividend income or may constitute a return of capital. The Company furnishes annually to each stockholder a statement setting forth distributions paid during the preceding year and their U.S. federal income tax treatment.