reAlpha Tech Corp. Income Taxes Disclosure

Note 4 - Income Taxes

 

The Company generated a worldwide pre-tax loss of $17,590,392 and $26,076,609 and for the periods ended December 31, 2025 and December 31, 2024, respectively.

 

Pre-Tax book income/(loss) has been recorded in the following jurisdictions:

 

		Tax Years Ended
		December 31, 2025				December 31, 2024
US		$	(16,807,849	)		$	(6,891,977	)
Foreign			(782,543	)			(844,997	)
From continuing operations			(17,590,392	)			(7,736,974	)
From discontinued operations (US)			-				(18,339,635	)
Total pre-tax income/(loss)		$	(17,590,392	)		$	(26,076,609	)

 

The Company recorded no federal, state, or foreign income tax expense for the period ended December 31, 2025. The Company recorded federal and state income tax expense for the period ended December 31, 2024 of ($29,699) and ($24,561), respectively.

 

		Tax Years Ended
		December 31, 2025				December 31, 2024
Current:
Federal		$	-			$	(29,699	)
State			-				(24,561	)
Foreign			-				-
			-				(54,260	)
Deferred:
Federal			-				-
State			-				-
Foreign			-				-
			-				-
Income tax expense (benefit) for continuing operations			-				(54,260	)
Income tax expense (benefit) for discontinued operations			-				-
Total		$	-			$	(54,260	)

Effective January 1, 2025, the Company adopted ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (“ASU 740”), on a prospective basis in accordance with the standard’s transition guidance. As required under ASU 2023-09, the rate reconciliation for the current year is presented using the new prescribed categories and enhanced disaggregation to provide greater transparency into the factors affecting the Company’s effective tax rate for continuing operations. The following table presents the Company’s income tax rate reconciliation on continuing operations for the year ended December 31, 2025, prepared in accordance with the disclosure requirements of ASU 2023-09.

 

		Year Ended
		December 31, 2025
		Amount				Percent
U.S. Federal Statutory Tax Rate		$	(3,695,382	)			21.00	%
Foreign Tax Effects			163,363				-0.93	%
Changes in Valuation Allowances			2,879,844				-16.37	%
Nontaxable or Nondeductible Items
Equity offering costs			605,895				-3.44	%
Other nontaxable or nondeductible items			37,924				-0.22	%
Other Adjustments			8,356				-0.05	%
Effective Tax Rate		$	(0	)			0.00	%

 

As a result of the Company’s prospective adoption of ASU 740, the rate reconciliation table presented above for the year ended December 31, 2025 reflects the new prescribed categories and enhanced disaggregation required under the updated disclosure framework. In accordance with the transition guidance, the Company did not elect retrospective application; therefore, the comparative periods that follow are presented in the legacy ASC 740 format applicable to those historical periods. The Company continues to apply FASB ASC Topic 740, Income Taxes, in the computation and presentation of its income tax provision, and the enhanced ASU 740 disclosure requirements apply solely to the current year rate reconciliation. The following table presents the reconciliation of the income tax provision (benefit) for prior periods using the legacy ASC 740 disclosure format for continuing operations.

 

		Year Ended
		December 31, 2024
U.S. federal taxes at statutory rate			(1,440,858	)
State tax			(24,561	)
Regulation-A Costs			12,985
Stock registration expenses			257,066
Other permanent differences			5,280
Other			(29,699	)
Change in valuation allowance			1,165,527
Total		$	(54,260	)

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows:

 

		Tax Years Ended
		December 31, 2025				December 31, 2024
Deferred tax assets:
Net operating loss carryforwards		$	8,572,166			$	5,309,474
Section 174 capitalization			343,947				430,891
Stock compensation			185,925				-
Other deferred tax assets			2,365				-
Gross deferred tax assets			9,104,403				5,740,365
Valuation allowance			(8,132,421	)			(4,951,573	)
Net deferred tax assets		$	971,982			$	788,792
Deferred tax liabilities
Property and equipment			(1,218	)			(1,468	)
Intangibles			(970,764	)			(787,324	)
Gross deferred tax liabilities			(971,982	)			(788,792	)
Net deferred tax liabilities			(971,982	)			(788,792	)
Net deferred taxes		$	-			$	-

 

Cash paid for incomes taxes (net of refunds) are as follows for the year ended December 31, 2025:

 

		Tax Year Ended
		December 31, 2025
U.S. Federal		$	-
U.S. State			-
Foreign
India			10,248
Nepal			11,895
Total income taxes paid, net		$	22,143

 

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the financial statement and tax basis of assets and liabilities by using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. The Company recognizes deferred tax assets to the extent that 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 results of recent operations. The valuation allowance changed by $3.1 million, during the year ended December 31, 2025.

For the period ended December 31, 2025, reAlpha Tech Corp. has a total carryover of Federal Net Operating Losses (“NOLs”) of $36.2 million. The Company’s NOLs were generated after the rules of the Tax Cuts and Jobs Act (“TCJA”) became effective on January 1, 2018. The NOLs do not expire but are subject to the 80% limitation. The Company has a State NOL carryover of $36.4 million. These NOLs are subject to various limitations and expiration dates.

 

The Internal Revenue Code of 1986, as amended, imposes restrictions on the utilization of net operating losses and tax credits in the event of an “ownership change” of a corporation. Accordingly, a company’s ability to use net operating losses and tax credits may be limited as prescribed under Internal Revenue Code Section 382 and 383 (“IRC Section 382”). Events which may cause limitations in the amount of the net operating losses or tax credits that the Company may use in any one year include, but are not limited to, a cumulative ownership change of more than 50% over a three-year period. Utilization of the federal and state net operating losses may be subject to substantial annual limitation due to the ownership change limitations provided by the IRC Section 382 rules and similar state provisions. In the event the Company has any changes in ownership, net operating losses and research and development credit carryovers could be limited and may expire unutilized.

 

It is the Company’s policy to include penalties and interest expense in income tax expense. There was no interest expense or penalties related to unrecognized tax benefits recorded through December 31, 2025.

 

The Company’s major tax jurisdictions are the United States, India, Nepal and Singapore. All of the Company’s tax years will remain open for examination by the Federal and state tax authorities for three and four years, respectively, from the date of utilization of the net operating loss or research and development credit. The Company does not have any tax audits pending in the United States.

 

The Inflation Reduction Act of 2022 was signed into law August 16, 2022, and includes significant legislation addressing taxes, inflation, climate change and renewable energy incentives, and healthcare. Key tax provisions include a 15% corporate minimum tax, clean energy incentives, and a 1% excise tax on stock buybacks. The Company does not expect the provisions of such legislation to have any impact on the effective tax rate of the Company but will continue to evaluate the tax effects should any provisions become applicable to the Company.

 

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted as Public Law 119-21. The legislation implements several amendments to the Internal Revenue Code, including the permanent extension of 100 percent bonus depreciation for qualified property and research and development expenditures, as well as revisions to expensing rules applicable to certain structures. The Act also includes modifications affecting corporate tax administration, such as adjustments to the Employee Retention Credit (ERC), changes to Opportunity Zone related provisions, and the scheduled expiration or modification of certain business-related clean energy credits.

 

The Company has evaluated the corporate income tax effects of the OBBBA in the period of enactment. In connection with the Act’s modifications to business expensing and R&D cost recovery, the Company has accelerated amortization for its domestic research and experimental expenditures pursuant to Section 174, consistent with the Act’s statutory framework governing the timing and characterization of such costs. The resulting adjustments have been reflected in the Company’s measurement of current and deferred income tax assets and liabilities. Based on its analysis, the Company determined that the enactment of the OBBBA did not have a material impact on its consolidated financial statements for the year ended December 31, 2025. The Company will continue to monitor regulatory and administrative guidance issued under the Act.

The Organization for Economic Co-operation and Development (the “OECD”) has issued various proposals that would change long-standing global tax principles. These proposals include a two-pillar approach to global taxation (BEPS 2.0/ Pillar Two), focusing on global profit allocation and a global minimum tax rate. On December 12, 2022, the European Union member states agreed to implement the OECD’s global corporate minimum tax rate of 15%, to be effective as of January 2024. Other countries are also actively considering changes to their tax laws to adopt certain parts of the OECD’s proposals. The enactment of Pillar Two legislation is not anticipated to have a material adverse effect on the Company’s effective tax rate, financial position, results of operations, or cash flows. The Company will continue to monitor and reflect the impact of such legislative changes in future financial statements as appropriate.

 

The following table summarizes net operating loss carryforwards and the related valuation allowance as of December 31, 2025 and 2024.

 

				December 31, 2025				December 31, 2024
A.		Valuation Allowance Increase			2,929,421				2,428,348
B.		Federal NOL Carryforward			36,192,280				22,085,100
C.		City of Dublin, OH NOL Carryforward, OH NOL Carryforward			21,913,264				14,232,690
D.		State of Ohio NOL Carryforward			-				18,753,731
E.		City of Columbus, OH NOL Carryforward, OH NOL Carryforward			10,863,854				-
F.		Florida NOL Carryforward			3,672,507				-