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Redwood Trust, Inc. Announces Dividend Tax Information For 2005

Friday, January 13, 2006

MILL VALLEY, Calif.--(BUSINESS WIRE)--Jan. 13, 2006--Redwood Trust, Inc. (NYSE:RWT), a financial institution that invests in, credit-enhances, and securitizes residential and commercial real estate loans and securities, today announced tax information regarding its dividend distributions for 2005.

Shareholders should check the tax statements they receive from brokerage firms to make sure the Redwood dividend information reported in those statements conforms to the information reported here. Furthermore, shareholders should consult their tax advisors to determine the amount of taxes that should be paid on Redwood dividend income.

Under the tax rules applicable to real estate investment trusts (REITs) such as Redwood, the $0.67 per share fourth quarter 2004 regular common stock dividend that had a record date of December 31, 2004 and a payment date of January 21, 2005 was reportable on shareholders' 2004 tax returns.

All of the other common stock dividends paid during 2005 are reportable on shareholders' 2005 tax returns, including three $0.70 per share quarterly regular dividends and the fourth quarter special dividend of $3.00 per share. In addition, the $0.70 per share fourth quarter 2005 common stock dividend with a record date of December 30, 2005 that will be paid on January 23, 2006 is also reportable on shareholders' 2005 tax returns.

Thus, for 2005, Redwood shareholders that held stock for this entire period should report a total of $5.80 per share of common stock dividends for tax purposes.

Under the tax rules applicable to REITs, each of Redwood's 2005 dividend distributions are characterized for tax purposes as follows:

    --  76.709% ordinary income

    --  23.291% long-term capital gains income

    The dividends paid in 2005 do not include any return of capital.

For a shareholder that held stock through this entire period, earning $5.80 per share of dividends taxable in 2005, the ordinary income portion is $4.449 per share and the long-term capital gains portion is $1.351 per share.

Redwood's 2005 long-term capital gains income is largely attributable to residential credit-enhancement securities that were sold or called at a profit during the year. When Redwood distributes this income as dividends, shareholders are taxable on this portion of their dividends at long-term capital gains rates (which may be lower than tax rates on ordinary income).

As a REIT, the portion of Redwood's dividends that is characterized as ordinary income is generally taxed at full ordinary income rates.

The table below provides more detailed tax information for each of Redwood's common stock dividends that are taxable in 2005.

Common Stock (CUSIPs 758075 40 2)
Dividend      Declaration       Record       Payable      Distrib
  Type           Dates          Dates         Dates      Per Share
Regular        3/18/2005       3/31/2005    4/21/2005      $0.70
Regular         5/6/2005       6/30/2005    7/21/2005      $0.70
Regular        8/26/2005       9/30/2005   10/21/2005      $0.70
Special       11/14/2005      11/25/2005    12/9/2005      $3.00
Regular       11/14/2005      12/30/2005    1/23/2006      $0.70
                                                Total      $5.80

       Ordinary   Return of     Long Term        #Of         Total $
        Income     Capital    Capital Gains     Shares        Paid
      $0.536963   $0.000000     $0.163037     24,514,222   $17,159,955
      $0.536963   $0.000000     $0.163037     24,646,963   $17,252,874
      $0.536963   $0.000000     $0.163037     24,764,404   $17,335,083
      $2.301271   $0.000000     $0.698729     24,852,485   $74,557,455
      $0.536963   $0.000000     $0.163037     25,132,625   $17,592,838
-------------------------------------------               ------------
Total $4.449123   $0.000000     $1.350877                 $143,898,205

For shareholders that are corporations, Redwood's dividends are not generally eligible for the corporate dividends-received deduction.

No portion of Redwood's 2005 dividends consisted of "excess inclusion" income subject to the specialized tax reporting and other rules applicable to such income.

This information is available on our website at

    CONTACT: Redwood Trust, Inc.
             Harold Zagunis, 415-389-7373

    SOURCE: Redwood Trust, Inc.

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