Offerpad Solutions Inc. Income Taxes Disclosure
Note 13. Income Taxes
The Company is subject to federal and state income taxes in the United States.
Loss before income taxes was $(45.9) million, $(62.1) million and $(117.1) million during the years ended December 31, 2025, 2024, and 2023, respectively.
Income tax expense consisted of the following for the respective periods:
|
|
Year Ended December 31, |
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|||||||||
($ in thousands) |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||
Current: |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
State |
|
|
441 |
|
|
|
31 |
|
|
|
163 |
|
Total current |
|
|
441 |
|
|
|
31 |
|
|
|
163 |
|
Deferred: |
|
|
|
|
|
|
|
|
|
|||
Federal |
|
|
— |
|
|
|
— |
|
|
|
— |
|
State |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Total deferred |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Income tax expense |
|
$ |
441 |
|
|
$ |
31 |
|
|
$ |
163 |
|
The provision for income taxes differs from the tax computed using the statutory U.S. federal income tax rate as a result of the following items for the respective periods:
|
|
Year Ended December 31, |
|
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(In thousands, except percentages) |
|
2025 |
|
|
2024 |
|
|
2023 |
|
|||||||||||||||
Benefit at federal statutory income tax rate |
|
$ |
(9,648 |
) |
|
|
21.0 |
% |
|
$ |
(13,047 |
) |
|
|
21.0 |
% |
|
$ |
(24,582 |
) |
|
|
21.0 |
% |
State taxes (1) |
|
|
441 |
|
|
|
(1.0 |
)% |
|
|
31 |
|
|
|
(0.1 |
)% |
|
|
163 |
|
|
|
(0.1 |
)% |
Changes in valuation allowances |
|
|
6,197 |
|
|
|
(13.5 |
)% |
|
|
12,557 |
|
|
|
(20.2 |
)% |
|
|
24,064 |
|
|
|
(20.6 |
)% |
Nontaxable or nondeductible items: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Stock-based compensation |
|
|
2,652 |
|
|
|
(5.8 |
)% |
|
|
119 |
|
|
|
(0.2 |
)% |
|
|
59 |
|
|
|
(0.1 |
)% |
Other |
|
|
83 |
|
|
|
(0.2 |
)% |
|
|
4 |
|
|
|
0.0 |
% |
|
|
39 |
|
|
|
0.0 |
% |
Other |
|
|
716 |
|
|
|
(1.5 |
)% |
|
|
367 |
|
|
|
(0.6 |
)% |
|
|
420 |
|
|
|
(0.3 |
)% |
Effective income tax rate |
|
$ |
441 |
|
|
|
(1.0 |
)% |
|
$ |
31 |
|
|
|
(0.1 |
)% |
|
$ |
163 |
|
|
|
(0.1 |
)% |
(1) State taxes in Texas comprise the majority of state and local taxes for each of the years presented.
Deferred tax assets and liabilities consist of the following as of December 31:
($ in thousands) |
|
2025 |
|
|
2024 |
|
||
Deferred tax assets: |
|
|
|
|
|
|
||
Federal net operating loss carryforwards |
|
$ |
104,891 |
|
|
$ |
93,564 |
|
State net operating loss carryforwards |
|
|
20,454 |
|
|
|
18,473 |
|
Operating lease liabilities |
|
|
3,638 |
|
|
|
3,856 |
|
Research and development expenditures |
|
|
2,686 |
|
|
|
4,839 |
|
Stock-based compensation |
|
|
1,369 |
|
|
|
4,665 |
|
Transaction costs |
|
|
1,348 |
|
|
|
1,464 |
|
Real estate inventory |
|
|
397 |
|
|
|
732 |
|
Other |
|
|
1,236 |
|
|
|
1,392 |
|
Gross deferred tax assets |
|
|
136,019 |
|
|
|
128,985 |
|
Valuation allowance |
|
|
(133,022 |
) |
|
|
(125,887 |
) |
Deferred tax assets, net of valuation allowance |
|
|
2,997 |
|
|
|
3,098 |
|
Deferred tax liabilities: |
|
|
|
|
|
|
||
Operating lease right-of-use assets |
|
|
(1,897 |
) |
|
|
(2,182 |
) |
Property and equipment |
|
|
(386 |
) |
|
|
(469 |
) |
Other |
|
|
(714 |
) |
|
|
(447 |
) |
Gross deferred tax liabilities |
|
|
(2,997 |
) |
|
|
(3,098 |
) |
Net deferred income taxes |
|
$ |
— |
|
|
$ |
— |
|
As of December 31, 2025, the Company had federal net operating loss carryforwards of $492.3 million to offset future taxable income, of which $26.0 million, in the aggregate, expires in 2036 and 2037 if not utilized, with the remaining $466.3 million having no expiration. The Company also has U.S. state net operating loss carryforwards of $412.9 million, of which $238.4 million, in the aggregate, expires at various dates ranging from 2032 through 2045 if not utilized, with the remaining $174.5 million having no expiration.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. The Company considers the scheduled reversal of deferred tax liabilities (including the impact of available carryback and carryforward periods), projected future taxable income, and tax-planning strategies in making this assessment. As a result of historical cumulative losses, the Company has determined that, based on all available evidence, there was substantial uncertainty as to whether it will recover recorded net deferred taxes in future periods. Therefore, the Company recorded a full valuation allowance equal to the amount of the net deferred tax assets as of December 31, 2025 and 2024. The valuation allowance increased by $7.1 million, $14.9 million, and $29.0 million during the years ended December 31, 2025, 2024, and 2023, respectively.
The Internal Revenue Code (the “IRC”) contains provisions that limit the amount of net operating loss carryforwards that a company may use in a given year in the event of certain cumulative changes in ownership over a three-year period as described in Section 382 of the IRC. As a result of the Company’s registered direct offering in January 2026, the Company determined that an ownership change occurred as of January 13, 2026. Consequently, the Company’s ability to utilize its net operating loss carryforwards and tax credit carryforwards that existed as of January 13, 2026 is subject to annual limitations. To the extent that any single-year limitation is not utilized to the full amount of the limitation, such unused amounts are carried over to subsequent years until the earlier of utilization or the expiration of the relevant carryforward period.
Taxes Paid
Taxes paid, net of refunds received, were $0.4 million, $0.3 million and $0.4 million during the years ended December 31, 2025, 2024, and 2023, respectively. The Company’s tax payments are comprised of state and local tax payments, and principally include payments made to the state of Texas.
Uncertain Tax Positions
During the years ended December 31, 2025, 2024, and 2023, the Company had no uncertain tax positions.
Income Tax Audits
The Company files in U.S. federal and various state income tax jurisdictions. The Company is subject to U.S. federal and state income tax examinations by authorities for all tax years beginning in 2017 due to the accumulated net operating losses that are carried forward.
Tax Law Changes
On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was signed into law. The OBBBA includes multiple tax law and other legislative changes, including modifications to income tax provisions such as domestic research and development expenses. The provisions of the OBBBA did not have a material impact on the Company’s effective tax rate for the year ended December 31, 2025.
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.