XTI Aerospace, Inc. Income Taxes Disclosure

Note 17 – Income Taxes

 

The components of loss from continuing operations before income taxes for the years ended December 31, 2025 and 2024 are as follows (in thousands):

 

		For the Years Ended December 31,
		2025				2024
Domestic		$	(52,478	)		$	(27,835	)
Foreign			(568	)			(418	)
Net loss before income taxes		$	(53,046	)		$	(28,253	)

The income tax provision (benefit) for the years ended December 31, 2025 and 2024 consists of the following (in thousands):

 

		For the Years Ended December 31,
		2025				2024
U.S. federal							—
Current		$	—			$	—
Deferred			(8,425	)			(3,564	)
State and local
Current			12				8
Deferred			1,713				(782	)
			(6,700	)			(4,338	)
Change in valuation allowance			6,710				4,322
Income Tax Benefit (Provision)		$	10			$	(16	)

 

Amounts for the year ended December 31, 2024 have been recast to reflect the classification of certain operations as discontinued operations. The Company adopted ASU 2023-09 prospectively in 2025; accordingly, the 2025 rate reconciliation is presented under the new guidance, while the prior year is presented under previous guidance and is not directly comparable to the current year presentation.

 

The reconciliation between the U.S. statutory federal income tax rate and the Company’s effective income tax rate for the year ended December 31, 2025 is as follows:

 

		For the Years Ended December 31, 2025
		USD				%
Pretax Book Income (Loss)			(53,046	)
US Federal Statutory Tax Rate			(11,140	)			21	%
State income taxes, net of federal benefit
State Rate Change			2,479				(4.67	)%
Valuation Allowance			(1,713	)			3.23	%
Other			(754	)			1.42	%
Foreign Tax Effects			119				(0.22	%
Effect of Cross-Border Tax Laws			-				0.0	%
Effect of Changes in Tax Laws or Rates Enacted in the Current Period			-				0.0	%
Nontaxable or Nondeductible Items
Acquisition Costs			751				(1.42	)%
Cost to Raise Capital			939				(1.77	)%
162(m)			1,577				(2.97	)%
Warrant Expense			1,476				(2.78	)%
Stock Options			583				(1.10	)%
Other			494				(0.93	)%
Tax Credits			-				0.0	%
Changes in Valuation Allowances			8,425				(15.88	)%
Changes in Unrecognized Tax Benefits			-				0.0	%
Other Adjustments
Investment in German Subsidiaries			(1,416	)			2.67	%
Other			(1,810	)			3.43	%
Total			10				(0.01	)%

 

The state income tax impact primarily relates to operations in Colorado, Florida, and Utah, which individually represent significant components of the Company’s state income tax expense.

The reconciliation between the U.S. statutory federal income tax rate and the Company’s effective income tax rate for the year ended December 31, 2024 is as follows:

 

		For the Years Ended December 31, 2024
U.S. federal statutory rate			21.0	%
State income taxes, net of federal benefit			2.7	%
162(m) Compensation Limit			(9.3	)%
Transaction Costs			(2.7	)%
Inducement Expense			(5.0	)%
Convertible Notes – FV Adjustment			9.6	%
Other permanent items			(1.3	)%
Foreign income tax rate difference			0.1	%
Provision to return adjustments			0.1	%
Other			(0.7	)%
Rate Change			0.1	%
Change in valuation allowance			(15.4	)%
Effective Rate			(0.0	)%

 

As of December 31, 2025 and 2024, the Company’s deferred tax assets and liabilities consisted of the effects of temporary differences attributable to the following (in thousands):

 

		As of December 31,
		2025				2024
Deferred Tax Asset
Loss carryovers		$	46,802			$	41,603
Stock based compensation			2,222				1,828
Accrued expenses			132				791
Unrealized gain			2,066				144
Section 174 capital research			756				1,214
Other			1,051				702
Total Deferred Tax Asset			53,029				46,282
Less: valuation allowance			(52,985	)			(46,273	)
Deferred Tax Asset, Net of Valuation Allowance		$	44			$	9

		As of December 31,
		2025				2024
Deferred Tax Liabilities
Intangible assets		$	(9	)		$	(2	)
Fixed assets			(35	)			(7	)
Total deferred tax liabilities			(44	)			(9	)
Net Deferred Tax Asset (Liability)		$	—			$	—

 

At December 31, 2025, the Company did not have any undistributed earnings of its foreign subsidiaries. As a result, no additional income or withholding taxes have been provided. The Company does not anticipate any impacts of the global intangible low-taxed income (“GILTI”) or base erosion anti-abuse tax (“BEAT”) and, as such, has not recorded any impact associated with either GILTI or BEAT.

 

In accordance with Section 382 of the Internal Revenue Code, the deductibility of the Company’s net operating loss (“NOL”) carryforwards is subject to an annual limitation in the event of a change in ownership, as defined by the regulations. The Company performed an analysis of ownership changes occurring during 2024 and 2025 and determined that certain NOLs are subject to limitation. As of December 31, 2025, the Company had approximately $133 million of NOL carryforwards available to offset future taxable income, subject to Section 382 limitations. Of this amount, approximately $5.3 million generated in 2017 will expire on December 31, 2037 if not utilized. The remaining NOLs generated after 2017 have an indefinite carryforward period. As of December 31, 2025 and 2024, the Company had gross state NOLs of $268.8 million and $163.7 million, respectively.

 

As of December 31, 2025, the Company’s foreign subsidiaries, including Nanotron GmbH and Intranav GmbH, had approximately $66.1 million of German NOL carryforwards available to offset future taxable income. These NOLs do not expire; however, German minimum taxation rules limit the amount of taxable income that may be offset in any given year. The related deferred tax assets and valuation allowances associated with these foreign NOLs are presented within discontinued operations.

 

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. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends on the generation of future taxable income during the periods in which temporary differences become deductible.

 

ASC 740 requires that a valuation allowance be established when it is more likely than not that all, or a portion of, deferred tax assets will not be realized. After consideration of all available positive and negative evidence, including cumulative losses and projections of future taxable income, management has concluded that a full valuation allowance is required against the Company’s deferred tax assets as of December 31, 2025. The increase in the valuation allowance for continuing operations was approximately $6.7 million for the year ended December 31, 2025.

 

ASC 740 also clarifies the accounting for uncertainty in income taxes. The Company recognizes the financial statement impact of a tax position when it is more likely than not that the position will be sustained upon examination. The Company files income tax returns in the United States (federal and state), Germany, and the United Kingdom, including jurisdictions related to discontinued operations. The Company has concluded that there are no material uncertain tax positions requiring recognition in the consolidated financial statements for the years ended December 31, 2025 and 2024.

 

The Company’s policy is to record interest and penalties related to unrecognized tax benefits as a component of income tax expense. No amounts were accrued for interest or penalties for the years ended December 31, 2025 and 2024. Management does not expect any material changes in unrecognized tax benefits in the next twelve months.

 

The Company’s tax returns are subject to examination by various taxing authorities. The Company is subject to examination by U.S. federal and state tax authorities beginning with the year ended December 31, 2022.