6. INCOME TAXES

As discussed in Note 1, a REIT is subject to taxation to the extent that taxable income exceeds dividend distributions to shareholders. In order to maintain status as a REIT, the Company is required to distribute at least 90% of its taxable income. In 2017, the Company had pretax income of $152,221 and distributions to shareholders in the form of dividends during the tax year of $469,783. In 2016, the Company had pretax loss of $(337,207) and distributions to shareholders in the form of dividends during the tax year of $402,672. The Company paid out 100% of taxable income in dividends in 2017 and 2016.

The Company has federal and Minnesota net operating loss carryforwards of $2,600,000. The federal losses start to expire in 2033 and the Minnesota losses start to expire in 2028. The carrying amounts of some assets differ for tax basis than book basis. At December 31, 2017 and 2016, the cumulative tax basis in the Company’s assets and liabilities exceeded book basis by $1,725,000 and $1,888,000, respectively. The Company has no deferred tax assets or liabilities on its balance sheet.

The Tax Cuts and Jobs Act, signed into law on December 22, 2017, represents sweeping changes to the Internal Revenue Code, including the reduction of the corporate tax rate to a flat 21 percent.  While this rate is not effective until January 1, 2018, ASC 740-10-30-8 requires deferred tax assets and liabilities to be measured based on the enacted rates expected to apply when the deferred tax assets or liabilities are settled.  We do not have any deferred tax assets, and therefore did not incur a charge or benefit with regards to the rate change.

At this time, it is unclear to what, if any, extent the many complexities of the new law will impact our financial statements apart from the above.  As such, we have not made any other adjustments.  We continue to work with our advisors to evaluate the new law and its application to ASC 740.