REDWOOD TRUST INC

REIT Status and Dividend Characterization

While the exact amount is uncertain at this time, we currently expect a portion of our 2025 common stock dividend distributions to be taxable as ordinary income for federal income tax purposes. Any remaining amount is currently expected to be characterized as a return of capital, which in general is nontaxable (provided it does not exceed a shareholder's tax basis in Redwood shares) and reduces a shareholder's basis in Redwood shares (but not below zero). To the extent such distributions exceed a shareholder's basis in Redwood shares, such excess amount would be taxable as capital gains. We currently expect all of our 2025 preferred stock dividend distributions to be taxable as ordinary income for federal income tax purposes. Under the federal income tax rules applicable to REITs, none of Redwood’s 2025 dividend distributions are currently expected to be characterized as long-term capital gain dividends. The income or loss generated at our TRS will not directly affect the tax characterization of our 2025 dividends; however, any dividends paid from our TRS to our REIT would allow a portion of our REIT’s dividends to be classified as qualified dividends.

Tax Provision under GAAP

For the three and nine months ended September 30, 2025, we recorded tax provisions of $6 million and $17 million, respectively. For the three and nine months ended September 30, 2024, we recorded tax provision of $7 million and $13 million, respectively. Our tax provision is primarily derived from the activities at our TRS, as we do not book a material tax provision associated with income generated at our REIT. The increase in the tax provision year-over-year was primarily the result of increased GAAP income earned at our TRS in 2025 compared to 2024. Refer to Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2024 under the caption Income Taxes for additional information regarding our tax provision and deferred tax assets.

The One Big Beautiful Bill Act (the “OBBB Act”) was enacted on July 4, 2025. The OBBB Act contains various provisions which will impact the Company, including restoring the taxable REIT subsidiary limit to 25%, permanently reinstating 100% bonus depreciation, and increasing interest deduction limits, among other various federal income tax law changes. The Company has evaluated the impact the OBBB Act had on the consolidated financial statements and determined there was no material impact to the income tax provision during the quarter ended September 30, 2025, and does not expect a material impact on the Company's effective tax rate for 2025.