FreightCar America, Inc. Income Taxes Disclosure

Note 16 - Income Taxes

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments in this update require changes to certain annual income tax disclosures and are effective for FreightCar's annual reporting periods beginning January 1, 2025. As such, the impacted disclosures for 2025 are reflected below in accordance with the updated requirements. These updates require, among other changes, (i) the use of specific categories and enhanced presentation within the income tax rate reconciliation, (ii) greater disaggregation of disclosures about income taxes paid, and (iii) more detailed disclosure of income tax expense. As allowed under the ASU, the Company has applied these changes retroactively. The amendments in this update did not affect the recognition, measurement, or financial statement presentation of income taxes.

The increase in effective tax rate from 2024 to 2025 was primarily due to the release of the majority of the valuation allowance previously recorded against U.S. federal deferred tax assets in 2025.

On July 4, 2025, the One Big Beautiful Bill Act (“OBBBA”) was enacted in the U.S. The OBBBA makes permanent many of the tax provisions enacted in 2017 as part of the Tax Cuts and Jobs Act that were set to expire at the end of 2025. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented as of 2026. The impact of these tax law changes is not material to the consolidated financial statements.

Deferred income taxes result from temporary differences in the financial and tax basis of assets and liabilities. Components of deferred tax assets (liabilities) consisted of the following:

A valuation allowance is provided when it is more likely than not that some portion or all of the deferred tax assets will not be realized. As of December 31, 2025, the Company's U.S. federal results have switched from a three-year cumulative loss position to a three-year cumulative income position when considering pretax book income and permanent items, allowing the Company to utilize forecasts of future profits as a source of income when evaluating the overall need for a valuation allowance. During the second quarter of 2025, due to cumulative income in recent years, management concluded that certain deferred tax asset balances for federal and state jurisdictions are realizable, which is the primary reason for the $53,444 total decrease in valuation allowance during 2025. Certain individual tax attributes still require a valuation allowance based on expected utilization.

The Company has certain pretax state net operating loss carryforwards of $207,949 which will expire between 2026 and 2044, for which a full valuation allowance has been recorded. The Company also has federal net operating loss carryforwards, tax credits (which will begin to expire in 2032, and for which a full valuation allowance has been recorded), and interest carryforwards of $176,741, $2,016 and $36,288, respectively.

No deferred taxes have been provided for any outside basis differences in foreign subsidiaries. Any undistributed foreign earnings are permanently reinvested and needed in the local jurisdictions for operations in China and Mexico.

The Company does not have any unrecognized tax benefit that, if recognized, would affect the Company's effective tax rate as of December 31, 2025 and 2024. As there are no unrecognized tax benefits for the years ended December 31, 2025 and 2024, the Company has zero penalties or interest accrued as of December 31, 2025 and 2024, respectively. The Company records interest and penalties as a component of income tax expense.

The Company and/or its subsidiaries file income tax returns with the United States federal government and in various state and foreign jurisdictions. A summary of tax years that remain subject to examination is as follows: