Company: ADAMM
Filing Date: 2025-08-22
Form Type: 424B5
Source: 0001104659-25-081920
Chunk: 123

Company: ADAMAS TRUST, INC.
Filing Date: 2025-08-22
Form: 424B5
Chunk 123
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 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.

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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 or NOLs. For partnerships, the interest deduction limit is applied at the partnership level, subject to certain adjustments to the partners for unused deduction limitations at the partnership level. A real property trade or business may elect out of this interest limit so long as it uses a 40-year recovery period for nonresidential real property, a 30-year recovery period for residential rental property, and a 20-year recovery period for related improvements. For this purpose, a real property trade or business is any real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operating, management, leasing, or brokerage trade or business. As a mortgage REIT, we do not believe that our business constitutes a “real property trade or business.” However, as a mortgage REIT, we do not believe we will be negatively impacted by the 30% limitation on the deductibility of interest because