S. 2962: Small Business Investor Tax Parity Act of 2025

The Small Business Investor Tax Parity Act of 2025 aims to adjust tax legislation to provide certain tax benefits to investors in business development companies (BDCs). Here’s a breakdown of its key provisions:

Tax Deduction for BDC Dividends

The bill proposes to amend the Internal Revenue Code to expand the deduction allowed under section 199A. The amendment will enable investors to deduct qualified interest dividends received from electing business development companies in a manner similar to how dividends from real estate investment trusts (REITs) are treated.

Definitions

• Qualified BDC Interest Dividend: This term refers to any dividend received from a business development company that has opted for this tax treatment. Specifically, these dividends must derive from the net interest income of the BDC that is linked to a qualified trade or business.
• Electing Business Development Company: An electing BDC is one that meets the definition set forth in the Investment Company Act of 1940 and has made an election under tax regulations to be classified as a regulated investment company.

Effective Date

The changes proposed by this legislation would take effect for taxable years that start after December 31, 2026.

Impact on Investors

By allowing a tax deduction for qualified BDC interest dividends, the bill aims to provide tax parity between BDCs and REITs, potentially enhancing the attractiveness of investing in business development companies for individual investors by lowering their tax burden on these dividends.

Relevant Companies

• BDCS - This is an index representing business development companies that could see changes in investor interest due to the tax benefits proposed in the bill.
• MAIN - Main Street Capital Corporation, a business development company that may benefit from increased investment flows if the tax advantages are realized.
• FSV - FS KKR Capital Corp, which could impact its valuation and investor relations positively with the introduction of such tax benefits for dividends.