Sponsors (4)
The bill extends the 199A QBI deduction to certain BDC interest-type dividends, benefiting BDC investors and making some BDCs more marketable, but it reduces federal revenue, raises compliance burdens, and creates uneven treatment for investors in non‑electing or nonqualifying BDCs.
Owners of pass-through entities and individual investors who receive interest-type dividends from BDCs can treat a portion of those dividends as qualified business income for the 199A deduction, lowering their taxable income.
BDCs that elect RIC status may attract more investors because interest dividends attributable to qualifying trade-or-business income become eligible for the favorable pass-through QBI deduction.
The change clarifies tax treatment for interest-type dividends from BDCs and reduces uncertainty about eligibility for the QBI deduction after 2026.
Expanding the 199A deduction to cover certain BDC interest dividends will reduce federal tax revenue, potentially increasing deficits or creating pressure to raise other taxes or cut spending.
Investors in non‑electing BDCs or recipients of dividends that fail the allocation test will not receive the deduction, producing uneven tax treatment across similar investment vehicles.
Taxpayers and BDCs will face added complexity and compliance costs to allocate net interest income to qualifying trades or businesses and document eligibility for the deduction.
Based on analysis of 2 sections of legislative text.
Makes certain interest dividends from electing BDCs eligible for the section 199A qualified business income deduction.
Allows certain interest dividends paid by qualifying business development companies (BDCs) that elect regulated investment company (RIC) status to be treated as "qualified BDC interest dividends" for purposes of the qualified business income (QBI) deduction under section 199A of the Internal Revenue Code. The change makes those interest dividends eligible for the QBI deduction beginning for taxable years after December 31, 2026. The amendment defines an "electing business development company" as a BDC that has an effective election under section 851 to be treated as a regulated investment company, and creates a new defined term to identify which interest dividends qualify. This is a targeted tax-code change affecting how certain BDC dividend income is taxed for investors and may influence investment flows to BDCs that elect RIC status.
Official title: Amend the Internal Revenue Code of 1986 to allow the deduction under section 199A to apply to qualified BDC interest dividends in the same manner as qualified REIT dividends.
Introduced October 1, 2025 by James E. Banks · Last progress October 1, 2025