Sponsors (4)
The bill makes BDC dividends more tax-favored and may help BDC-funded businesses access capital, but it reduces federal revenue and adds tax complexity for investors and the IRS.
Shareholders of electing business development companies (BDCs) can exclude more income from federal tax because certain BDC interest dividends become eligible for the qualified business income (QBI) deduction, lowering their individual income tax liability.
Electing BDCs that generate net interest income may become more attractive to investors, potentially improving capital access for small businesses and other firms financed by BDCs.
Expanding the QBI deduction to include certain BDC dividends will reduce federal tax revenue, which could increase deficits or crowd out other federal spending priorities.
Taxpayers and the IRS will face additional complexity because they must determine whether BDC dividends are 'attributable to net interest income properly allocable' to a qualified trade or business, increasing compliance burdens for investors and BDCs.
Based on analysis of 2 sections of legislative text.
Allows dividends from electing BDCs that are attributable to net interest income to qualify as QBI for the section 199A deduction.
Introduced January 23, 2025 by Jodey Cook Arrington · Last progress January 23, 2025
Treats certain dividends paid by business development companies (BDCs) that elect RIC treatment as eligible for the section 199A qualified business income (QBI) deduction when those dividends are attributable to net interest income from a qualified trade or business. The change applies to taxable years beginning after December 31, 2026, and requires BDCs and investors to identify and allocate the qualifying portion of dividends for QBI purposes.