Company: RWT-PA
Filing Date: 2025-01-15
Form Type: 424B5
Source: 0001104659-25-003632
Chunk: 94

Company: REDWOOD TRUST INC
Filing Date: 2025-01-15
Form: 424B5
Chunk 94
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 Income Tax Considerations—Taxation of the Company—Excess Inclusion Income.”

Excess Inclusion Income

A portion of income from
a TMP arrangement, which might be non-cash accrued income, could be treated as “excess inclusion income.” A REIT’s
excess inclusion income, including any excess inclusion income from a residual interest in a REMIC, must be allocated among its shareholders
in proportion to dividends paid. We generally do not expect to generate excess inclusion income that would be allocated to our stockholders.
In the event we do generate excess inclusion income, we are required to notify our stockholders of the amount of such income allocated
to them. A shareholder’s share of excess inclusion income:

| · | cannot be offset                                                    
 by any net operating losses otherwise available to the shareholder; |

| · | in the case                                                                                                                        
 of a shareholder that is a REIT, a regulated investment company, or a RIC, or a common trust fund or other pass-through entity, is 
 considered excess inclusion income of such entity;                                                                                 |

| · | is subject                                                                                                                           
 to tax as unrelated business taxable income in the hands of most types of shareholders that are otherwise generally exempt from U.S. 
 federal income tax;                                                                                                                  |

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| · | results in                                                                                                                       
 the application of U.S. federal income tax withholding at the maximum rate (30%), without reduction for any otherwise applicable 
 income tax treaty or other exemption, to the extent allocable to most types of non-U.S. shareholders; and                        |

| · | is taxable                                                                                                                       
 at the U.S. federal corporate income tax rate, currently 21%, to the REIT, rather than its shareholders, to the extent allocable 
 to the REIT’s shares held in record name by disqualified organizations (generally, tax-exempt entities not subject to unrelated  
 business income tax, including governmental organizations).                                                                      |

The manner in which excess
inclusion income is calculated, or would be allocated to our stockholders, including allocations among shares of different classes of
stock, is not clear under current law. As required by IRS guidance, we intend to make such determinations using a reasonable method.

Tax-exempt investors, RIC
or REIT investors, non-U.S. investors and taxpayers with net operating losses should carefully consider the tax consequences described
above, and are urged to consult their tax advisors with respect to the U.S. federal income tax consequences of an investment in