Sponsors (3)
Adds a rule allowing certain interest dividends from BDCs that elect RIC status to qualify as qualified business income for the Section 199A deduction.
The bill lets certain BDC interest dividends qualify for the Section 199A QBI deduction—lowering taxes and clarifying rules for eligible investors—but at the cost of reduced federal revenue, added compliance burdens, and unequal treatment for some investors.
Owners of pass-through entities and individual investors receiving business development company (BDC) interest dividends can claim a portion of those dividends under the Section 199A qualified business income (QBI) deduction, lowering their taxable income.
BDCs that elect regulated investment company (RIC) status may become more attractive to investors because interest dividends attributable to qualifying trade or business income receive favorable pass-through deduction treatment.
The amendment clarifies tax treatment for investors in BDCs receiving interest-type dividends, reducing uncertainty about eligibility for the QBI deduction after 2026.
Expanding Section 199A to cover certain BDC interest dividends reduces federal tax revenue, which could increase the deficit or put pressure on future tax increases or spending cuts.
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.
Investors in non-electing BDCs or in BDC dividends that fail the allocation test receive no benefit, creating uneven tax treatment across similar investment vehicles and investors.
Based on analysis of 2 sections of legislative text.
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
Allows certain interest dividends paid by specific Business Development Companies (BDCs) that elect RIC treatment to count as qualified business income for the individual QBI (Section 199A) deduction. The change applies to taxable years beginning after December 31, 2026, and creates a defined term “qualified BDC interest dividend” and an “electing business development company.”