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10-K
RLJ LODGING TRUST filed this Form 10-K on 03/01/2019
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16. Income Taxes

Current income tax expense represents the amounts expected to be reported on the Company’s income tax returns, and deferred tax expense or benefit represents the change in the net deferred tax assets and liabilities. The deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates that will be in effect when these differences reverse. A valuation allowance is recognized to reduce the deferred tax assets to the amount that is considered likely to be realized.

On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (the "Tax Reform Act"). The legislation significantly changed U.S. tax law by, among other things, lowering corporate income tax rates, implementing limitations on net operating loss carryovers, and allowing dividend income from a REIT to be eligible for a 20% qualified business income deduction. The Tax Reform Act permanently reduced the U.S. corporate income tax rate from a maximum of 35% to a flat 21% rate, effective January 1, 2018.

The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to the differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, and for net operating loss, capital loss and tax credit carryforwards. The deferred tax assets and liabilities are measured using the enacted income tax rates in effect for the year in which those temporary differences are expected to be realized or settled. The effect on the deferred tax assets and liabilities from a change in tax rates is recognized in earnings in the period when the net rate is enacted. As a result of the reduction in the U.S. corporate income tax rate from 35% to 21% under the Tax Reform Act, the Company remeasured certain deferred tax assets and liabilities based on the rates at which they are expected to reverse.

For federal income tax purposes, the cash distributions to shareholders are characterized as follows:
 
For the Years Ended December 31,
 
2018
 
2017
Common distributions:
 
 
 
Ordinary income
60.0
%
 
73.0
%
Return of capital

 
27.0
%
Capital gains
34.0
%
 

Qualified dividend
6.0
%
 

 
100.0
%
 
100.0
%
 
 
 
 
Preferred distributions:
 
 
 
Ordinary income
60.0
%
 
100.0
%
Return of capital

 

Capital gains
34.0
%
 

Qualified dividend
6.0
%
 

 
100.0
%
 
100.0
%

The components of the income tax provision are as follows (in thousands):
 
For the Years Ended December 31,
 
2018
 
2017
 
2016
Current:
 
 
 
 
 
Federal
$

 
$
(67
)
 
$
(76
)
State
(2,209
)
 
(2,304
)
 
(1,113
)
Deferred:
 
 
 
 
 
Federal
(4,867
)
 
(43,181
)
 
(6,141
)
State
(1,717
)
 
3,434

 
(860
)
Income tax expense
$
(8,793
)
 
$
(42,118
)
 
$
(8,190
)

F-40

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