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Highlighting itemized deduction limitations for private BDC investors

INSIGHT ARTICLE  | 

The Tax Cuts and Jobs Act amplifies the effects of certain deduction limitations as they apply to US-taxpaying individuals and other non-corporate investors in private business development companies (BDCs).

  • Under the Code, a non-publicly offered regulated investment company is treated as a pass-through entity that must pass through affected expenses (i.e., items that would be miscellaneous itemized deductions to non-corporate taxpayers if such taxpayers incurred these expenses directly).
  • Historically, miscellaneous itemized deductions have been deductible by US-taxpaying individual investors in a private BDC to the extent that they exceeded 2% of the adjusted gross income of US-taxpaying individual investors.
  • Beginning in 2018, however, the Tax Cuts and Jobs Act provides that miscellaneous itemized deductions are not deductible by US-taxpaying individual investors in a private BDC.

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