REDWOOD TRUST INC

REIT Status and Dividend Characterization

While the exact amount is uncertain at this time, we do not currently expect any portion of our 2026 common and preferred stock dividend distributions to be taxable as ordinary income for federal income tax purposes. All distributions are 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 taxable REIT dividends to be classified as qualified dividends.

The Company announced that on November 3, 2026, the Board unanimously approved the C-Corporation Conversion plan. The C-Corporation Conversion plan will not be completed until the Company makes a filing with the Internal Revenue Service to revoke the Company's election to be taxed as a REIT ("REIT Status Revocation Filing"). Under the C-Corp. Conversion Plan, the Company currently expects to make the REIT Status Revocation Filing with the IRS on or prior to March 31, 2027. As a result of the REIT Status Revocation Filing, the Company would become a taxable C corporation effective January 1, 2027. Under the C-Corporation Conversion plan, the Board has determined it is in the Company’s best interests to continue to maintain its REIT status for the taxable year ending December 31, 2026, and to remain in compliance with the requirements for taxation as a REIT during 2027 until such time as the Company makes the REIT Status Revocation Filing.

Tax Provision under GAAP

For the three and nine months ended September 30, 2026, we recorded tax benefits of $5 million and $6 million, respectively. For the three and nine months ended September 30, 2025, we recorded a tax provision of $6 million and $17 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.