11. INCOME TAX

The Company recognizes future tax assets and liabilities for each tax jurisdiction based on the difference between the financial reporting and tax bases of assets and liabilities using the enacted tax rates expected to be in effect when the taxes are paid or recovered. A valuation allowance is provided against net future tax assets for which the Company does not consider the realization of such assets to meet the required “more likely than not” standard.

The Company’s future tax assets and liabilities at December 31, 2025 and 2024 include the following components:

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The composition of the Company’s valuation allowance by tax jurisdiction is summarized as follows:

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The valuation allowance increased by $1,136 from the year ended December 31, 2024 to the year ended December 31, 2025. Since it is more likely than not that the deferred tax assets will not be realized, the Company has recorded a full valuation allowance against the deferred tax assets.

At December 31, 2025, the Company had total U.S. federal net operating loss (“NOL”) carryforwards of approximately $110,614, comprised of approximately $59,886 having expiration dates ranging from 2026 to 2037 and $50,728 not having expiration dates, and U.S. state NOL carryforwards of approximately $95,167 with expiration dates ranging from 2031 to 2045.

As a result of the Tax Cuts and Jobs Act, U.S. federal NOL carryforwards generated in years ending after 2017 have an indefinite carryforward period (no expiration date) rather than the 20-year carryforward period that applied to those NOL carryforwards generated in 2017 and earlier years.

Section 382 of the Internal Revenue Code could apply and limit our ability to utilize a portion of our U.S. federal NOL carryforwards. However, since no Section 382 study has been completed, the actual usage of U.S. federal NOL carryforwards has not been determined.

At December 31, 2025, the Company also had Canadian non-capital loss carryforwards of approximately C$15,351, which expire from 2026 to 2045, and Canadian capital loss carryforwards of C$59 having no expiration dates.

For financial reporting purposes, loss from continuing operations before income taxes consists of the following components:

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A reconciliation of expected income tax on net income at statutory rates is as follows:

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On July 4, 2025, the One Big Beautiful Bill Act (“OBBB”), which includes a broad range of elective tax law items available in 2025 and prescribed tax law changes in 2026, was signed into law in the United States. The Company has reflected the impact of the OBBB’s elective tax law items in its financial statements for the period ending December 31, 2025.

The Company does not have any unrecognized income tax benefits. Should the Company incur interest and penalties relating to tax uncertainties, such amounts would be classified as a component of interest expense and operating expense, respectively.

Rare Element files income tax returns in the Canadian federal and provincial jurisdictions, while its wholly owned subsidiary, Rare Element Resources, Inc., files U.S. federal and state tax returns. The years still open for audit are generally the current year plus the previous three. However, because the Company has NOL carryforwards, certain items attributable to closed tax years are still subject to adjustment by applicable taxing authorities through an adjustment to tax losses carried forward to open years.