HR652-119

What This Bill Does

The Small Business Investor Tax Parity Act amends Internal Revenue Code section 199A so qualified BDC interest dividends are treated like qualified REIT dividends for the qualified business income deduction calculation. A qualified BDC interest dividend is a dividend from an electing business development company received during the taxable year that is attributable to the company net interest income properly allocable to a qualified trade or business. An electing business development company is a business development company under the Investment Company Act of 1940 that has an election in effect under section 851 to be treated as a regulated investment company. The amendments apply to taxable years beginning after December 31, 2026. In practical terms, investors receiving qualifying interest dividends from electing BDCs could receive section 199A deduction treatment similar to REIT dividend treatment.

Who Benefits and How

BDC investors benefit because qualifying interest dividends can be included in the section 199A deduction framework. Electing business development companies benefit because tax parity with REIT dividends may make their investment products more attractive. Small business borrowers may benefit indirectly if BDCs can raise capital more efficiently and lend more to qualified trades or businesses. Financial advisers benefit from a clearer tax category for BDC interest dividends.

Who Bears the Burden and How

Federal taxpayers and federal revenues bear the cost of any additional section 199A deductions. Treasury and IRS tax administrators must define reporting, forms, and guidance for qualified BDC interest dividends. Business development companies must trace dividend amounts to net interest income properly allocable to qualified trades or businesses and maintain regulated investment company election status. Investors must determine whether dividends they receive qualify under the new rule.

Key Provisions

• Adds qualified BDC interest dividends to section 199A alongside qualified REIT dividends.
• Provides qualified business income deduction treatment for eligible BDC interest dividends received after 2026.
• Defines qualified BDC interest dividend by reference to net interest income allocable to a qualified trade or business.
• Defines electing business development company as a BDC with a section 851 regulated investment company election.
• Modifies section 199A calculations for taxable years beginning after December 31, 2026.