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Income Taxes
 12 Months Ended
Dec. 31, 2025
Income Tax Disclosure [Abstract]  
Income Taxes
12. Income Taxes

The income tax expense (benefit) for income taxes for the years indicated were as follows (in millions):
 Year Ended December 31,
 20252024
Current tax expense
Federal$(1.0)$0.6 
State2.6 4.5 
Foreign1.0 0.7 
Net current tax expense
$2.6 $5.8 
Deferred tax expense (benefit)
Federal$0.3 $0.2 
Foreign(0.4)0.3 
Net deferred tax (benefit) expense
$(0.1)$0.5 
Income tax expense$2.5 $6.3 

The US and foreign components of income (loss) from continuing operations before income taxes for the years indicated were as follows (in millions):
 Year Ended December 31,
 20252024
US$(63.3)$(36.1)
Foreign1.8 2.7 
Loss from continuing operations before income taxes
$(61.5)$(33.4)

The following table is a reconciliation of the U.S. federal statutory rate of 21% to the Company’s effective rate for the year ended December 31, 2025 in accordance with the guidance in ASU No. 2023-09 (in millions):
 Year Ended December 31, 2025
 
Amount
Percent
Tax (benefit) at federal statutory rate$(12.9)21.0 %
State tax, net of federal benefit(1)
1.9 (3.1)%
Foreign Tax Effects0.3 (0.5)%
Increase (decrease) in valuation allowance12.7 (20.7)%
Non-taxable or non-deductible items:
Non-deductible meals and entertainment0.7 (1.1)%
Other Adjustment:
Other(0.2)0.3 %
Income tax expense$2.5 (4.1)%
(1) State taxes in New York, California, and Louisiana made up the majority (greater than 50%) of the tax effect in this category.

The following table is a reconciliation of the U.S. federal statutory rate of 21% to the Company’s effective rate for the years ended December 31, 2024 in accordance with the guidance prior to the adoption of ASU 2023-09 (in millions):
 Year Ended December 31, 2024
 Amount
Tax (benefit) at federal statutory rate$(7.0)
State tax, net of federal benefit(1.3)
Non-deductible meals and entertainment0.5 
Executive and stock compensation2.1 
Increase (decrease) in valuation allowance19.8 
Tax rate changes(4.9)
Return to provision(3.8)
Other0.9 
Income tax expense$6.3 
Income tax expense of $2.5 million for the year ended December 31, 2025, primarily relates to the tax expense for taxpaying entities for which there was a decrease in tax expense due to the decrease in pre-tax results. Additionally, the tax benefits associated with losses generated by certain other businesses have been reduced by a full valuation allowance as management does not believe it is more-likely-than-not that the losses will be utilized.

Income tax expense of $6.3 million for the year ended December 31, 2024, primarily relates to the tax expense for taxpaying entities, for which there was an increase in current federal tax expense due to INNOVATE's U.S. consolidated group utilizing its remaining unlimited NOLs in 2024 and due to the Tax Cuts and Jobs Act's 80% limitation on net operating losses incurred after 2017. Additionally, the tax benefits associated with losses generated by the INNOVATE Corp. U.S. tax consolidated group and certain other businesses have been reduced by a full valuation allowance as the Company does not believe it is more-likely-than not that the losses will be utilized prior to expiration.

On July 4, 2025, the One Big Beautiful Bill Act ("OBBBA") was enacted into law, introducing various changes to U.S. federal income tax provisions, including modifications to bonus depreciation, interest expense limitations, and the treatment of research and development expenditures. Under ASC 740, the effects of newly enacted tax legislation must be recognized in the period that includes the enactment date. Management has evaluated the provisions of the OBBBA and their current and potential impact on the financial statements. Based on this evaluation, the Company does not expect the OBBBA to have a material effect on the current or deferred income tax balances, effective tax rate, or overall financial position. The effects of the legislation have been reflected in the Company’s income tax provision for the year ended December 31, 2025. The Company will continue to monitor developments and assess the impact of the OBBBA as additional guidance becomes available and as facts and circumstances evolve.

The following table presents income taxes paid, net of refunds, for the year ended December 31, 2025, based on the adoption of ASU 2023-09 (in millions):
 Year Ended December 31, 2025
 AmountPercent
Federal$0.9 14.0 %
State:
California1.5 23.4 %
New York1.2 18.8 %
Louisiana0.8 12.5 %
Other state jurisdictions1.2 18.8 %
Foreign:
Canada0.5 7.8 %
Other foreign jurisdictions0.3 4.7 %
Total income taxes paid, net of refunds
$6.4 100.0 %
Deferred income taxes reflect the net income tax effect of temporary differences between the basis of assets and liabilities for financial reporting purposes and for income tax purposes. Net deferred tax balances as of the years indicated were comprised of the following (in millions):
December 31,
20252024
Net operating loss carryforwards$81.6 $79.2 
Basis difference in fixed assets0.4 0.4 
Deferred compensation7.6 8.1 
Sec. 163(j) carryforward74.4 68.3 
Deferred Interest
4.3 — 
Lease liability15.5 15.7 
Investment in partnership
10.5 10.8 
Other deferred tax assets8.1 8.1 
Total deferred tax assets202.4 190.6 
Valuation allowance(138.6)(128.9)
Total net deferred tax assets$63.8 $61.7 
Basis difference in fixed assets(17.0)(16.4)
Right-of-use assets
(14.7)(15.0)
Basis difference in intangibles(32.7)(30.4)
Lease termination(0.7)(1.5)
Other deferred tax liabilities(1.4)(1.2)
Total deferred tax liabilities$(66.5)$(64.5)
Net deferred tax liabilities$(2.7)$(2.8)
Net deferred tax asset per Consolidated Balance Sheet
$2.0 $1.6 
Deferred tax liabilities per Consolidated Balance Sheet
4.7 4.4 
Total net deferred tax liabilities
$(2.7)$(2.8)

Deferred tax assets refer to assets that are attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets in essence represent future savings of taxes that would otherwise be paid in cash. The realization of the deferred tax assets is dependent upon the generation of sufficient future taxable income, including capital gains. If it is determined that the deferred tax assets cannot be realized, a valuation allowance must be established, with a corresponding charge to net income (loss).

The Company records valuation allowances for deferred tax assets when, based on management's judgment, it is more likely than not that such assets will not be realized. This assessment is based on projections of future income or loss and other positive and negative evidence by individual tax jurisdiction. Changes in industry and economic conditions and the competitive environment may impact these projections. During each reporting period, the Company assesses the likelihood that its deferred tax assets will be realized and determines if adjustments to its valuation allowances are appropriate.

Management evaluated the need to maintain the valuation allowance against the deferred taxes of the INNOVATE Corp. U.S. consolidated tax group ("the group") for each of the reporting periods based on the positive and negative evidence available. The objective negative evidence evaluated was the group’s historical operating results over the prior three-year period. The group is in a cumulative three-year loss as of December 31, 2025, which provides negative evidence that is difficult to overcome and would require a substantial amount of objectively verifiable positive evidence of future income to support the realizability of the group’s deferred tax assets. While positive evidence exists by way of unrealized gains in the Company’s investments, management concluded that the negative evidence outweighs the positive evidence. Thus, it is more likely than not that the group’s US deferred tax assets will not be realized. However, as the Company executes potential sales of subsidiaries, management expects that such event would likely provide sufficient positive evidence to support the realization of certain deferred tax assets, which could result in a material release of the Company’s valuation allowance.

Valuation allowances have been maintained against deferred tax assets based on losses generated by certain businesses that are not included in the INNOVATE Corp. U.S. consolidated income tax return. Generally, consolidation rules under the Internal Revenue Code require consolidation of like-kind entities with an 80% or greater equity ownership, and each individual state or foreign jurisdiction has their own distinct consolidation rules which vary.
As of December 31, 2025, the Company has not recognized any deferred tax liabilities associated with undistributed earnings of its foreign subsidiaries, as these earnings are considered permanently reinvested. Determination of the amount of unrecognized deferred income tax liability is not practicable due to the complexities associated with its hypothetical calculation. Upon distribution of those earnings in the form of dividends or otherwise, the Company may be subject to U.S. income taxes and withholding taxes payable in various foreign jurisdictions, which could potentially be offset by foreign tax credits.

Net Operating Losses

At December 31, 2025, the Company had gross U.S. net operating loss ("NOL") carryforwards available to reduce future taxable income of the U.S. consolidated group in the amount of $176.3 million. The Company expects that approximately $123.0 million of the gross U.S. NOL carryforwards would be available to offset taxable income in 2026 and later periods. This estimate may change based on changes to actual results reported on the 2025 U.S. tax return. The amount of U.S. NOL carryforwards reflected in the financial statements differ from the amounts reported on the U.S. tax return due to uncertain tax positions related to tax laws and regulations that are subject to varied interpretation by the Internal Revenue Service ("IRS").

Due to U.S. enacted Public Law 115-97, known informally as the Tax Cuts and Jobs Act (the "TCJA") in 2017, U.S. NOL carryforwards in the amount of $141.8 million, generated after 2017 have an indefinite carryforward period. U.S. NOL carryforwards, in the amount of $34.5 million, generated prior to 2018 will expire, if unused, by 2037.

Additionally, as of December 31, 2025, the Company had $164.3 million of gross U.S. NOL carryforwards from its subsidiaries that do not qualify to be included in the INNOVATE U.S. consolidated income tax return, including $115.7 million from R2 Technologies, $45.9 million from DTV, and other entities of $2.7 million. Of the $164.3 million of gross U.S. NOL carryforwards, $128.2 million was generated after 2017 and will have an indefinite carryforward period; the remaining $36.1 million was generated prior to 2018 and will expire, if unused, by 2037.

Pursuant to the rules under Section 382, the Company concluded that it underwent an ownership change on May 29, 2014 and $46.1 million gross U.S. NOLs recorded in the consolidated financial statements are subject to an annual limitation under IRC Sec. 382 of approximately $2.3 million.

The purchase of GrayWolf on November 30, 2018 triggered a Section 382 ownership change. $57.1 million of gross U.S. NOLs acquired are subject to an annual limitation between $3.0 million and $4.0 million for the first five years beginning in 2019 and $1.1 million afterwards. $25.4 million of the GrayWolf U.S. NOLs subject to Section 382 were generated in 2018, and, therefore, they do not expire.

Additionally, the Company has $11.4 million of acquired U.S. NOLs from DTV America, which is subject to an annual limitation under Section 382 of the Internal Revenue Code.

As of December 31, 2025, the Company had foreign operating loss carryforwards of approximately $0.6 million.

Unrecognized Tax Benefits

The Company follows the provision of ASC 740 which prescribes a comprehensive model for how a company should recognize, measure, present, and disclose in its financial statements uncertain tax positions that the Company has taken or expects to take on a tax return. The Company is subject to challenge from various taxing authorities relative to certain tax planning strategies, including certain intercompany transactions as well as regulatory taxes.

The Company did not have any unrecognized tax benefits as of December 31, 2025 and 2024, related to uncertain tax positions that would impact the effective income tax rate if recognized. The Company has reduced the NOL carryforward by $58.7 million for uncertain tax positions based on our interpretation of tax laws and regulations that are subject to varied interpretations by the IRS.

Below is a tabular reconciliation of the total amount of unrecognized tax benefits as of the years indicated (in millions):

Year Ended December 31,
20252024
Uncertain tax benefits - January 1$17.6 $17.6 
Gross decreases - Tax positions in prior year
— — 
Uncertain tax benefits - December 31$17.6 $17.6 

Examinations

The Company conducts business globally, and as a result, INNOVATE or one or more of its subsidiaries files income tax returns in the United States federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world. Tax years 2002-2024 remain open for examination.
The Company is currently under examination in various state and foreign tax jurisdictions. The open tax years contain matters that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, character, timing or inclusion of revenue and expenses or the applicability of income tax credits for the relevant tax period. Given the nature of tax audits, there is a risk that disputes may arise.