REDWOOD TRUST INC

REIT Status and Dividend Characterization

While the exact amount is uncertain at this time, a portion of our 2026 common and preferred stock dividend distributions may be taxable as ordinary income for federal income tax purposes. Any remaining amount is 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. Under the federal income tax rules applicable to REITs, none of Redwood’s 2026 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 2026 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.

As previously disclosed, we regularly evaluate Redwood’s corporate structure in light of our business activities, opportunities, and strategic growth plans. Following our mid-2025 announcement of the accelerated shift of our business model towards our mortgage banking operations and away from non-core portfolio investments, we have continued to evaluate Redwood’s corporate structure, including its status as a REIT under the Internal Revenue Code, as our business model continues to evolve. For example, growth in our mortgage banking businesses, which generally are required to be conducted through taxable REIT subsidiaries, may reach a level that makes it necessary or advisable for Redwood to alter or reorganize its corporate structure to fully realize their growth potential and maximize shareholder value. In conducting these evaluations, we generally compare our existing structure with alternative structures, including, without limitation, structures in which Redwood terminates its REIT status, structures in which Redwood enters into partnerships or joint ventures relating to its business units (or implements structural changes involving the separation or external management of one or more of its business units), or structures in which Redwood otherwise separates its REIT-eligible activities from the mortgage banking and other businesses it currently conducts through taxable REIT subsidiaries. While we currently intend to maintain our REIT status, our evaluation remains ongoing. Any changes to our corporate structure (including our REIT status) could be complex, time-consuming, and costly, and may expose us to new risks or potential liabilities, including risks related to conflicts of interest, regulatory compliance and tax liabilities. Additional information on Redwood's capital, REIT and organizational structure is described in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2025 under the heading “Risk Factors”.

Tax Provision under GAAP

For the three and six months ended June 30, 2026, we recorded a tax provision of $1 million and a tax benefit of $1 million, respectively. For the three and six months ended June 30, 2025, we recorded a tax provision of $5 million and $11 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 change from a tax provision to a tax benefit year-over-year was primarily the result of GAAP income earned at our TRS in 2025 compared to a GAAP loss at our TRS in 2026. Refer to Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2025 under the caption Income Taxes for additional information regarding our tax provision and deferred tax assets.