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Income Taxes | 3 Months Ended
--- | ---
Mar. 31, 2025
Income Tax Disclosure [Abstract] |
Income Taxes |
Note 18 - Income Taxes
| Three Months Ended March 31, |  |
| 2025 |  | 2024 |  |  |  |
Income tax expense (benefit) | $ | (13.0) |  |  | $ | 1.7 |  |  |  |
Income before income taxes | $ | 9.1 |  |  | $ | 31.8 |  |  |  |  |
Effective tax rate | (142.9) | % |  | 5.2 | % |  |  |  |
The $13.0 million income tax benefit for the three months ended March 31, 2025 includes the recognition of a $13.3 million benefit due to the favorable resolution of a prior-year uncertain tax position during the period. Our annual effective tax rate is generally lower than the 21% federal statutory income tax rate primarily due to the full valuation allowance recorded on our net U.S. federal and state deferred tax assets ($179.8 million as of December 31, 2024). The realization of deferred tax assets is dependent on our ability to generate sufficient future taxable income. We conduct periodic evaluations of positive and negative evidence to determine whether it is more likely than not that the deferred tax asset can be realized in future periods. In these evaluations, we give more significant weight to objective evidence, such as our actual financial condition and historical results of operations, as compared to subjective evidence, such as projections of future taxable income or losses. Other factors considered in these evaluations are future reversals of temporary differences, tax character and the impact of tax planning strategies that may be implemented, if warranted. We determined that a full valuation allowance at March 31, 2025 remained appropriate. We believe it is reasonably possible that by December 31, 2025, we could release some or all of our valuation allowance that currently offsets our net U.S. deferred tax asset. The accounting guidance (ASC 740, Income Taxes) states that “a cumulative loss in recent years is a significant piece of negative evidence that is difficult to overcome”. We believe it is reasonably possible that by December 31, 2025, we would have transitioned from a cumulative loss in recent years to cumulative income as a result of Onity improving its earnings in the more recent years. Any release of our valuation allowance requires significant judgment and is contingent on continued analysis of the positive and negative evidence and actual and expected future profitability. As such, the exact timing and amount of any valuation allowance release is subject to change. We will continue to maintain a full valuation allowance on our U.S. net deferred tax asset until there is sufficient positive evidence to support the reversal of all or some portion of this allowance. Release of the valuation allowance would result in an increase to Deferred tax assets, net on our consolidated balance sheet, and a corresponding non-cash decrease to income tax expense (thus an increase to net income and stockholders’ equity).

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