Permanent Tax Differences for Deferred Tax Assets and Liabilities. 

Farhat keeps calling Taxes Payable as "tax expense", which is not correct. Don't let that trip you up. For the rent - you have tenants who have paid cash in advance of when you could recognize it as income. Your actual payable taxes include the tax on this "prepaid" rent (really this is a deferred revenue) because you received the cash, but the tax expense per GAAP does not include it because you haven't recognized the revenue yet. This amount would be a DTA because you can't expense it until you are able to recognize it as revenue. You are deferring the expense, which creates an asset. For the depreciation - this is not a cash transaction, but you are allowed to deduct this from your taxes payable. Since this is not a permanent difference, you have a deferral. Since the MACRs depreciation is greater than GAAP depreciation, the actual taxes payable are less than the tax expensed per GAAP. So, the DTL temporarily offsets your tax expense by this difference. Keep in mind that at the end of that depreciated asset's life, both Tax and GAAP will have depreciated the same amount and will bring the asset's cost basis to zero. This means that the DTL will be reduced to zero and the total taxes paid will equal the total taxes expensed over the life of the asset. If your book depreciation was more than the tax depreciation, you would have a DTA. Hope this helps someone!