We qualified to be taxed as a REIT, commencing with our taxable year ending December 31, 2013. As a REIT, we are not subject to federal corporate income tax on that portion of net income that is currently distributed to our owners. However, our TRS will generally be subject to federal, state, and local income taxes as well as taxes of foreign jurisdictions, if any.

We account for income taxes of our TRS using the asset and liability method. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to the differences between the consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in earnings in the period when the new rate is enacted.

During the three months ended March 31, 2014, we transferred an asset to our TRS that had a tax basis in excess of its book basis. We recognized a deferred tax asset for the amount we expect to be realizable. Because the transfer was done amongst entities under common control, we recorded the $1.9 million impact of the transaction to additional paid in capital. We established a valuation allowance against the remaining balance of our deferred tax asset as of March 31, 2014.

During the three months ended September 30, 2014, we recorded a tax provision of $0.6 million related to our TRS activities. For the nine months ended September 30, 2014, we recorded an income benefit of $0.2 million. The income tax expense and benefits recorded were determined using a federal rate of 35% and a combined state rate, net of federal benefit, of 5%. The effective tax rate for the TRS for the three months ended September 30, 2014, was 45%, which exceeded the combined statutory tax rate of 40% as a result of provision to return adjustments recorded during the quarter. For the nine months ended September 30, 2014, the TRS effective tax rate was a 3% benefit primarily as a result of the reversal of a $2.1 million deferred tax valuation allowance. We had no income tax expense related to our TRS activities for the three and nine months ended September 30, 2013. As of September 30, 2014, there is no deferred tax valuation allowance against our deferred tax assets.