Small Business Investor Tax Parity Act of 2025
This bill, titled the Small Business Investor Tax Parity Act of 2025, would extend the 199A deduction (the 20% deduction for qualified business income) to include a new category: qualified BDC interest dividends. These are dividends paid by electing Business Development Companies (BDCs) that are treated as Regulated Investment Companies (RICs) and that stem from the BDC’s net interest income allocated to a qualified trade or business. In effect, investors who own shares in certain BDCs would receive the same 199A treatment now available for qualified REIT dividends. The amendments apply to taxable years beginning after December 31, 2026. In plain terms, the bill seeks tax parity between investments in REITs and certain BDCs by allowing investors to subtract 20% of eligible qualified BDC interest dividends from their taxable income, just as they can for qualified REIT dividends, subject to existing 199A rules and limitations.
Key Points
- 1Adds qualified BDC interest dividends to the 199A framework, making them eligible for the same treatment as qualified REIT dividends.
- 2Defines “qualified BDC interest dividend” as any dividend from an electing BDC that is attributable to net interest income properly allocable to a qualified trade or business of the BDC.
- 3Defines an “electing business development company” as a BDC (per the Investment Company Act of 1940) that has elected under section 851 to be treated as a regulated investment company (RIC).
- 4Amends the relevant subsections of Section 199A to insert “qualified BDC interest dividends” after “qualified REIT dividends.”
- 5Provides an effective date: the amendments apply to taxable years beginning after December 31, 2026.