How to Use the IRC Section 250 FDII Deduction Calculator
Internal Revenue Code Section 250 provides domestic C-corporations with a preferential tax deduction on income derived from foreign sales, licensing, leases, and services provided to non-US persons for foreign use. This calculator models the exact 8-step statutory sequence formalized on IRS Form 8993 (Section 250 Deduction for Foreign-Derived Intangible Income and Global Intangible Low-Taxed Income).
Understanding the 2026 TCJA Rate Cliff
Enacted under the Tax Cuts and Jobs Act of 2017 (P.L. 115-97), Section 250 deductions are subject to a statutory rate reduction for taxable years beginning after December 31, 2025:
- Tax Years 2018–2025: 37.5% deduction rate on FDII, producing an effective corporate tax rate of 13.125% (21% statutory rate × [1 - 0.375]).
- Tax Years 2026 and Beyond: 21.875% deduction rate on FDII, raising the effective corporate tax rate to 16.40625% (21% statutory rate × [1 - 0.21875]).
Frequently Asked Questions
What qualifies as Foreign-Derived Deduction Eligible Income (FDDEI)?
FDDEI consists of gross deduction-eligible income earned from the sale, lease, license, or exchange of property to any person who is not a US person, established to the satisfaction of the IRS to be for foreign use, or services provided to persons or with respect to property located outside the United States.
Why does QBAI reduce the FDII deduction?
Congress designed FDII to incentivize intangible IP assets rather than physical capital. The law presumes a baseline 10% return on tangible depreciable assets (QBAI). This Deemed Tangible Income Return (DTIR) is deducted from Deduction Eligible Income, ensuring that only "excess" intangible returns receive the preferential tax rate.
Can an S-Corporation or LLC claim the Section 250 FDII deduction?
No. IRC Section 250 is exclusively available to domestic C-corporations. Pass-through entities such as partnerships, LLCs, and S-corporations cannot claim the deduction directly, though corporate partners in a partnership may claim their distributive share.