APPFOLIO INCAPPF
APPFOLIO INC Income Taxes Disclosure
Income Taxes
As described in Note 2, Summary of Significant Accounting Policies, we have elected to prospectively adopt the guidance in ASU 2023-09, Improvements to Income Taxes Disclosures. The following table is a reconciliation of the U.S. federal statutory rate of 21% to our effective tax rate for the year ended December 31, 2025 in accordance with the guidance in ASU 2023-09:
Year Ended December 31, | |||||||||||
| 2025 | |||||||||||
| (dollars in thousands) | |||||||||||
| U.S. federal statutory income tax rate | $ | 33,833 | 21 | % | |||||||
State and local income taxes, net of federal benefit(1) | (1,083) | (1) | |||||||||
| Tax credits | (11,424) | (7) | |||||||||
| Nontaxable or nondeductible items | |||||||||||
| Excess tax benefits from stock-based compensation | (10,340) | (6) | |||||||||
| Non-deductible officers' compensation | 4,559 | 3 | |||||||||
| Other nondeductible items | 896 | 1 | |||||||||
| Changes in unrecognized tax benefits | 3,748 | 2 | |||||||||
| Provision for (benefit from) income taxes | $ | 20,189 | 13 | % | |||||||
(1)The state(s) that contribute to the majority (greater than 50%) of the tax effect in this category is California
The following table is a reconciliation of the U.S. federal statutory rate of 21% to our effective tax rate for the years ended December 31, 2024 and 2023 in accordance with the guidance prior to the adoption of ASU 2023-09:
| Year Ended December 31, | |||||||||||
| 2024 | 2023 | ||||||||||
| U.S. federal statutory income tax rate | 21 | % | 21 | % | |||||||
| State and local income taxes, net of federal benefit | (2) | (44) | |||||||||
| Change in valuation allowance | (37) | 215 | |||||||||
| Stock-based compensation expense | (13) | (108) | |||||||||
| Federal research and development tax credits | (10) | (93) | |||||||||
| Non-deductible officers' compensation | 5 | 79 | |||||||||
| Other permanent differences | — | (4) | |||||||||
| Provision for (benefit from) income taxes | (36) | % | 66 | % | |||||||
The (benefit from) provision for income tax consists of the following (in thousands):
| Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Current | |||||||||||||||||
| Federal | $ | 550 | $ | 26,452 | $ | 3,485 | |||||||||||
| State and local | 2,169 | 6,280 | 2,299 | ||||||||||||||
| Foreign | 11 | 30 | — | ||||||||||||||
| Total current | 2,730 | 32,762 | 5,784 | ||||||||||||||
| Deferred | |||||||||||||||||
| Federal | 19,453 | (46,578) | (477) | ||||||||||||||
| State and local | (1,994) | (39,930) | (12) | ||||||||||||||
| Total deferred | 17,459 | (86,508) | (489) | ||||||||||||||
| Total (benefit from) provision for income taxes | $ | 20,189 | $ | (53,746) | $ | 5,295 | |||||||||||
The components of deferred tax assets (liabilities) were as follows (in thousands):
December 31, | |||||||||||
| 2025 | 2024 | ||||||||||
| Deferred income tax assets: | |||||||||||
| Net operating loss carryforwards | $ | 39,660 | $ | 9,201 | |||||||
| Research and development tax credits | 36,205 | 24,326 | |||||||||
| Capitalized research and software costs | 996 | 66,090 | |||||||||
| Stock-based compensation | 3,252 | 413 | |||||||||
| Lease liability | 9,939 | 11,139 | |||||||||
| Other | 2,073 | 1,495 | |||||||||
| Total deferred tax assets | 92,125 | 112,664 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Property and equipment | $ | (2,524) | $ | (3,351) | |||||||
| Intangible assets | (12,514) | (15,387) | |||||||||
| Capitalized commissions | (5,927) | (4,463) | |||||||||
| State taxes | (8,170) | (7,749) | |||||||||
| Lease asset | (4,148) | (4,695) | |||||||||
| Other | (19) | (109) | |||||||||
| Total deferred tax liabilities | (33,302) | (35,754) | |||||||||
| Total net deferred tax liabilities | $ | 58,823 | $ | 76,910 | |||||||
In evaluating the need for a valuation allowance at each reporting period, we consider the weighting of all available positive and negative evidence, which includes, among other things, the nature, frequency and severity of current and cumulative taxable income or losses, future projections of profitability, timing of the future reversal of existing temporary differences, and the duration of statutory carryforward periods. In assessing all available evidence, we determined that there
was sufficient positive evidence to overcome the negative evidence, including our past and current financial results, growth demonstrated in our top-line performance, as well as projected profitability. Accordingly, we determined it is more likely than not that the deferred tax assets will be realized and we released our valuation allowance at December 31, 2024.
As of December 31, 2025, we had federal and state net operating loss carryforwards $146.8 million and $112.5 million, respectively. The federal net operating loss carryforwards do not expire and state net operating losses will begin to expire in 2028. As of December 31, 2025, we also had federal and state research and development credit carryforwards of $11.8 million and $36.9 million, respectively. The federal credit carryforwards will begin to expire in 2044, while the state credit carryforwards apply indefinitely. Utilization of our net operating loss and credit carryforwards may be subject to annual limitation due to the ownership change limitations provided by the Internal Revenue Code and similar state provisions.
The following is a reconciliation of the total amounts of reserves for unrecognized tax benefits from uncertain tax positions (in thousands):
Year Ended December 31, | |||||||||||||||||
| 2025 | 2024 | 2023 | |||||||||||||||
| Unrecognized tax benefit beginning of year | $ | 14,935 | $ | 12,315 | $ | 9,455 | |||||||||||
| Increases-tax positions in prior year | 416 | 1,203 | — | ||||||||||||||
| Increases-tax positions in current year | 3,418 | 3,732 | 2,860 | ||||||||||||||
| Statute of limitation expiration | $ | — | $ | (2,315) | $ | — | |||||||||||
| Unrecognized tax benefit end of year | $ | 18,769 | $ | 14,935 | $ | 12,315 | |||||||||||
As of December 31, 2025, we recorded gross uncertain tax benefits of $18.8 million a majority of which would impact our effective tax rate, if recognized. We accrued interest and penalties related to our uncertain income tax positions in our income tax expense, and the amount of interest and penalties accrued for the year ended December 31, 2025 and 2024 are immaterial.
We file income tax returns in the U.S. federal jurisdiction and various state and local jurisdictions. While the applicable statute of limitations are generally open for three to four years for the jurisdictions we file in, we remain subject to income tax examinations for years ended after December 31, 2019 for federal taxes and all years for most state jurisdictions due to the usage of carryforward attributes, such as net operating losses and research and development credits. As of December 31, 2025, we have not been notified for audit by the Internal Revenue Service or any significant state jurisdiction.
The following table presents income taxes paid (net of refunds received) for the year ended December 31, 2025 (in thousands):
| Year Ended December 31, | |||||
| 2025 | |||||
| Federal taxes | $ | 22,390 | |||
| State taxes | 6,450 | ||||
| International taxes | — | ||||
| Cash paid for income taxes (net of refunds) | $ | 28,840 | |||
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Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 5, 2026 | Showing above |
| 2024 | Feb 6, 2025 | |
| 2023 | Feb 1, 2024 | |
| 2022 | Feb 9, 2023 | |
| 2021 | Feb 28, 2022 | |
| 2020 | Mar 1, 2021 | |
| 2019 | Mar 2, 2020 | |
| 2018 | Feb 28, 2019 | |
| 2017 | Feb 26, 2018 | |
| 2016 | Feb 27, 2017 | |
| 2015 | Feb 29, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.