Company: ADAMM
Filing Date: 2025-09-05
Form Type: S-3
Source: 0001104659-25-087812
Chunk: 86

Company: ADAMAS TRUST, INC.
Filing Date: 2025-09-05
Form: S-3
Chunk 86
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 expenses and the inclusion of that income and deduction of such expenses in arriving at our REIT taxable income. Possible examples of those timing differences include the following:

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Because we may deduct capital losses only to the extent of our capital gains, we may have taxable income that exceeds our economic income.

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We will recognize taxable income in advance of the related cash flow if any of our mortgage loans or mortgage-backed securities are deemed to have original issue discount. We generally must accrue original issue discount based on a constant yield method that takes into account projected prepayments but that defers taking into account credit losses until they are actually incurred.

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We may acquire investments that will be treated as having “market discount” for U.S. federal income tax purposes, because the investments will be debt instruments that we acquire for an amount less than their principal amount. Under the U.S. federal income tax rules applicable to market discount and our elections under those rules, we are required to recognize market discount as ordinary income as it accrues. The recognition of market discount results in an acceleration of the recognition of taxable income to periods prior to the receipt of the related economic income. Further, to the extent that such an investment does not fully amortize according to its terms, we may never receive the economic income attributable to previously recognized market discount.

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We are required to take certain amounts in income no later than the time such amounts are reflected on certain financial statements, which may require the accrual of income with respect to our debt instruments or mortgage-backed securities, including original issue discount and market discount, earlier than would be the case under the general tax rules.

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We may recognize taxable income without receiving a corresponding cash distribution if we foreclose on or make a significant modification to a loan, to the extent that the fair market value of the underlying property or the principal amount of the modified loan, as applicable, exceeds our basis in the original loan.

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We may recognize phantom taxable income from any residual interests in REMICs or retained ownership interests in mortgage loans subject to collateralized mortgage obligation debt.

In addition, our net interest expense deduction is limited to 30% of the sum of adjusted taxable income, business interest, and certain other amounts. Adjusted taxable income does not include items of income or expense not allocable to a trade or business, business interest or expense, the deduction for qualified business income, deductions for depreciation, amortization or depletion or NOLs. For partnerships, the interest deduction limit is applied at the partnership level, subject to certain adjustments to the partners for