Company: SDHC
Filing Date: 2025-05-14
Form Type: 10-Q
Source: 0001982518-25-000020
Chunk: 38

Company: Smith Douglas Homes Corp.
Filing Date: 2025-05-14
Form: 10-Q
Item: Part I, Item 1
Chunk 38
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rolling interest holders is not reported by the Company in its unaudited condensed consolidated financial statements under U.S. GAAP.The estimated annual effective tax rate for the year ending December 31, 2025 is 4.5%. The difference between the estimated annual effective income tax rate and the U.S. federal statutory rate is primarily due to: (1) income attributable to non-controlling interests which is not taxable to Smith Douglas Homes Corp., (2) Smith Douglas Holdings LLC’s election to be taxed at the entity level, and (3) state income taxes.The Company’s income tax provision was $0.9 million for the three months ended March 31, 2025 and $0.9 million for the period from January 11, 2024 to March 31, 2024. As the IPO occurred during the three months ended March 31, 2024, and the Company had no business transactions or activities prior to the IPO, no amounts related to the provision for income taxes were incurred for the period from January 1, 2024 to January 10, 2024.

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As of March 31, 2025, the Company has recorded a deferred tax asset of $9.7 million resulting from the step-up in basis allowed under Section 743(b) and 197 of the Internal Revenue Code related to the purchase of 2,435,897 LLC Interests from the Continuing Equity Owners discussed in Note 1, Description of business and summary of significant accounting policies, which is expected to be amortized over the useful lives of the underlying assets. The Company has also recorded a deferred tax asset of $17.1 million resulting from the outside basis difference related to its investment in Smith Douglas Holdings LLC by applying the look-through method to record the Company's proportionate share of inside basis differences within Smith Douglas Holdings LLC. The Company recognizes deferred tax assets to the extent it believes these assets are more likely than not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent results of operations. After considering all those factors, as of March 31, 2025, the Company has recorded a valuation allowance of $16.0 million for certain deferred tax assets the Company has determined are not more likely than not to be realized.As each of the Continuing Equity Owners elects to convert their LLC Interests into Class A common stock, Smith Douglas Homes