XML 143 R29.htm IDEA: XBRL DOCUMENT v3.25.4
Income Taxes
 12 Months Ended
Dec. 31, 2025
Income Tax Disclosure [Abstract]  
Income Taxes
19. Income Taxes
The provision for income taxes related to continuing operations consisted of the following (in thousands):
Year ended
December 31,
20252024
Current benefit
Federal$— $(13)
Deferred expense
Federal2,651 2,010 
State868 401 
Total deferred expense3,519 2,411 
Provision for income taxes$3,519 $2,398 

The following table presents a reconciliation of the U.S. federal statutory income tax rate to our effective tax rate from continuing operations (dollars in thousands):
Year ended
December 31,
20252024
AmountPercentAmountPercent
Tax provision at U.S. federal statutory rate$23,75021.0 %$8,99121.0 %
State and local income taxes, net of federal income tax effect(1)
8680.84010.9
Nontaxable or nondeductible items:
Noncontrolling interest(12,139)(10.7)(4,373)(10.2)
Fair value adjustments on certain financial instruments1,3021.1——
Other(965)(0.9)5131.2
Tax credits:
Research and development1100.1(109)(0.3)
Changes in valuation allowances(8,811)(7.8)(2,458)(5.7)
Other tax adjustments(596)(0.5)(567)(1.3)
Tax provision at effective tax rate$3,5193.1 %$2,3985.6 %
(1) The jurisdictions that contribute to the majority of the tax effect in this category are California, New York, Colorado, Oklahoma, Oregon, and Utah.

The effective tax rate is calculated by dividing the provision for income taxes by net income from continuing operations before income taxes. The Company’s effective tax rate on continuing operations for the years ended December 31, 2025 and 2024 differs from the U.S. federal statutory rate primarily due to the income attributable to noncontrolling interest and the changes in valuation allowances previously recorded against deferred tax assets, including NOL carryforwards and other deferred tax assets.
FOA is taxed as a corporation and is subject to U.S. federal, state, and local taxes on the income allocated to it from FOA Equity based upon FOA’s economic interest in FOA Equity as well as any stand-alone income it generates. FOA Equity and its disregarded subsidiaries, collectively, are treated as a partnership for U.S. federal and most applicable state and local income tax purposes. As a partnership, FOA Equity is not subject to U.S. federal and certain state and local income taxes. FOA Equity’s members, including FOA, are liable for U.S. federal, state, and local income taxes based on their allocable share of FOA Equity’s pass-through taxable income.
Deferred income taxes reflect the net tax effects of temporary differences between the carrying value of assets and liabilities for financial reporting purposes and the amounts reported for income tax purposes. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences attributable to those temporary differences and the expected benefits of net operating losses and carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
Significant components of the Company’s deferred tax assets and deferred tax liabilities are as follows (in thousands):
December 31, 2025December 31, 2024
Deferred tax assets
Loss carryforwards$52,084 $41,410 
Earnout awards5,315 5,025 
Research and development tax credits1,406 1,482 
TRA1,040 836 
Other207 177 
Gross deferred tax assets60,052 48,930 
Valuation allowance(35,502)(38,454)
Deferred tax assets, net of valuation allowance24,550 10,476 
Deferred tax liabilities
Investment in FOA Equity 30,688 13,095 
Gross deferred tax liabilities30,688 13,095 
Net deferred tax liability$(6,138)$(2,619)

As of December 31, 2025 and 2024, the federal and state NOL carryforwards were $195.3 million and $164.1 million, respectively. It is expected that these NOLs will not expire.
A valuation allowance is provided when it is more likely than not that a portion or all of a deferred tax asset will not 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. As of December 31, 2025, the Company had cumulative income on a three-year basis. However, due to our forecast of continued taxable losses, management concluded that a valuation allowance for the deferred tax asset in excess of deferred tax liabilities should be maintained. Based on the Company’s financial performance in future periods and our financial projections, the Company could record a reversal of all, or a portion of the valuation allowance associated with deferred tax assets in future periods. Any such change is subject to actual performance and other considerations that may present positive or negative evidence at the time of the assessment. Further, the Company determined that the future sources of taxable income from reversing temporary differences that comprise the investment in FOA Equity deferred tax liability would only be fully realized upon sale of FOA’s interest in FOA Equity. Accordingly, the deferred tax liability from investment in FOA Equity has been treated as an indefinite-lived intangible and is limited by the federal net operating loss utilization rules. The net change in the valuation allowance was $3.0 million and $3.9 million for the years ended December 31, 2025 and 2024, respectively, primarily due to the results of operations and the related impact on the investment in FOA Equity and the NOL carryforwards. Furthermore, changes in the valuation allowance of $4.5 million and $1.2 million associated with transactions with the noncontrolling interest in the years ended December 31, 2025 and 2024, respectively, were offset to additional paid-in capital.
Net deferred tax liabilities are included in accrued and other liabilities, which is part of Payables and other liabilities in the Consolidated Statements of Financial Condition.
Tax positions taken in tax years that remain open under the statute of limitations will be subject to examinations by tax authorities. With few exceptions, the Company is no longer subject to state or local examinations by tax authorities for tax years ended December 31, 2021 or prior.
The Company’s unrecognized tax benefits, excluding related interest and penalties, were (in thousands):
Year ended
December 31,
20252024
Unrecognized tax benefits—beginning of period$437 $421 
Increases on tax positions related to the current period— 47 
Decreases on tax positions related to prior periods(33)(31)
Unrecognized tax benefits—end of period$404 $437 

If recognized, the entire amount of the tax benefits disclosed above would reduce the Company’s annual effective tax rate. FOA does not believe that it will have a material increase or decrease in its unrecognized tax benefits during the coming year. Federal, state, and local income taxes paid were insignificant during the years ended December 31, 2025 and 2024 due to our taxable losses and the availability of net operating loss carryforwards.
The One Big Beautiful Bill Act (the “Act”) was signed into law on July 4, 2025, introducing tax law changes with various effective dates. The provisions in the Act do not have a material impact on our consolidated financial statements.