ZILLOW GROUP INC

Note 12. Income Taxes

We are subject to income taxes in the United States (federal and state) and certain foreign jurisdictions. We recorded income tax expense of $4 million and $3 million for the years ended December 31, 2023 and December 31, 2022, respectively, primarily due to state taxes. We recorded an income tax benefit of $1 million for the year ended December 31, 2021, comprised of a $3 million income tax benefit from a decrease in the valuation allowance associated with our September 2021 acquisition of ShowingTime, partially offset by $2 million of tax expense primarily due to state income taxes.

The following table presents the components of our income tax expense (benefit) for the periods presented (in millions):

The following table presents a reconciliation of the federal statutory rate and our effective tax rate for the periods presented:

Deferred federal, state and foreign income taxes reflect the net tax impact of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and such amounts for tax purposes. The following table presents the significant components of our deferred tax assets and liabilities as of the dates presented (in millions):

Realization of deferred tax assets is dependent upon the generation of future taxable income, if any, the timing and amount of which are uncertain. We have provided a full valuation allowance against the net deferred tax assets as of December 31, 2023 and 2022 because, based on the weight of available evidence, it is more likely than not (a likelihood of more than 50%) that some or all of the deferred tax assets will not be realized. The valuation allowance increased by $22 million and $97 million during the years ended December 31, 2023 and 2022, respectively.

We have accumulated federal net operating losses of approximately $1.4 billion and $1.8 billion, as of December 31, 2023 and 2022, respectively, which are available to reduce future taxable income. We have accumulated state net operating losses of approximately $56 million and $63 million (tax effected) as of December 31, 2023 and 2022, respectively. Federal net operating losses generated in taxable periods on or before December 31, 2017 have a twenty-year carryforward period and begin to expire in 2036. Federal net operating loss carryforwards generated in taxable years beginning after December 31, 2017 may be carried forward indefinitely, but the deductibility of such net operating loss carryforwards in taxable years beginning after December 31, 2020 is limited to 80% of taxable income. State net operating loss carryforward periods for the various state jurisdictions generally range from three years to indefinite-lived and begin to expire in 2024. Additionally, we have net research and development credit carryforwards of $166 million and $164 million as of December 31, 2023 and 2022, respectively, which are available to reduce future tax liabilities. The research and development credit carryforwards begin to expire in 2025. Under Sections 382 and 383 of the Internal Revenue Code, if a corporation undergoes an “ownership change”, the corporation’s ability to use its pre-change net operating loss carryforwards and other pre-change tax attributes, such as research and development credits, to offset its post-change taxable income or income tax liability may be limited. In connection with our August 2013 public offering of our Class A common stock, we experienced an ownership change that triggered Sections 382 and 383, which may limit our ability to utilize our net operating loss and research and development credit carryforwards. In connection with our February 2015 acquisition of Trulia, Trulia experienced an ownership change that triggered Section 382 and 383, which may limit Zillow Group’s ability to utilize Trulia’s net operating loss and research and development credit carryforwards.

Our primary income tax jurisdiction is the United States (federal). With limited exceptions for state taxing authorities, which are not material to the financial statements, all tax years for which we have filed a tax return remain subject to examination due to the existence of net operating loss carryforwards.

Changes for unrecognized tax benefits for the periods presented are as follows (in millions):

At December 31, 2023, the total amount of unrecognized tax benefits of $95 million is recorded as a reduction to our deferred tax asset when available. We do not anticipate that the amount of existing unrecognized tax benefits will significantly increase or decrease within the next 12 months. Accrued interest and penalties related to unrecognized tax benefits are recorded as income tax expense and are not material.