Company: NXDT
Filing Date: 2025-03-31
Form Type: 10-K
Source: 0001356115-25-000003
Chunk: 956

Company: NEXPOINT DIVERSIFIED REAL ESTATE TRUST
Filing Date: 2025-03-31
Form: 10-K
Item: Item 9C
Chunk 956
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 to continue to be organized and to operate in a manner that will permit us to qualify as a REIT. However, we can 

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give no assurance that we will maintain REIT qualification. To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our annual “REIT taxable income”, as defined by the Code, to stockholders. As a REIT, we will be subject to federal income tax on our undistributed REIT taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital gain net income and (3) 100% of our undistributed income from prior years. Taxable income from certain non-REIT activities is managed through a TRS and is subject to applicable federal, state, and local income and margin taxes. The Company has recorded a current income tax expense of $1.4 million associated with the TRSs for the year ended December 31, 2024, which is largely driven by income from the Company’s preferred stock investments and investments in debt instruments not secured by mortgages on real property. The tax expense is increased by the annual change in valuation allowance on a deferred tax asset of $0.3 million and offset by a return-to-provision adjustment of $0.2 million and income tax refund of $0.7 million for a net expense of $1.4 million for the year ended December 31, 2024, that is recorded on the Consolidated Statement of Operations and Comprehensive Income (Loss).

If we fail to qualify as a REIT in any taxable year, we could be subject to U.S. federal income tax on our taxable income at regular corporate income tax rates, and distributions paid to our shareholders would not be deductible by us in computing taxable income. Any resulting corporate liability could be substantial and could materially and adversely affect our net income (loss) and net cash available for distribution to stockholders. Unless we were entitled to relief under certain Code provisions, we also would be disqualified from re-electing to be taxed as a REIT for the four taxable years following the year in which we failed to qualify to be taxed as a REIT. As of December 31, 2024, we believe we are in compliance with all applicable REIT requirements.