FDII Section 250 Deduction Calculator 2026 β Foreign-Derived Intangible Income
Calculate the FDII deduction for US C corporations under IRC Section 250. Post-2025 deduction rate: 21.875%. See effective tax rate on foreign sales vs standard 21% corporate rate.
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FDII Calculation Waterfall
How FDII Works Under Section 250
The FDII deduction rewards US corporations that sell to foreign markets by allowing a deduction on the portion of income that exceeds a "routine return" on tangible assets. This effectively lowers the tax rate on intangible-driven foreign income below the standard 21% corporate rate.
The Formula
DEI = Gross Income - COGS and Expenses (excluding Subpart F, GILTI, etc.)
Routine Return = 10% x QBAI
Deemed Intangible Income (DII) = max(0, DEI - Routine Return)
Foreign DEI Ratio = Foreign Customer Income / Total DEI
FDII = DII x Foreign DEI Ratio
Section 250 Deduction = FDII x 21.875% (post-2025)
Effective FDII Rate = 21% x (1 - 21.875%) = 16.406%
Routine Return = 10% x QBAI
Deemed Intangible Income (DII) = max(0, DEI - Routine Return)
Foreign DEI Ratio = Foreign Customer Income / Total DEI
FDII = DII x Foreign DEI Ratio
Section 250 Deduction = FDII x 21.875% (post-2025)
Effective FDII Rate = 21% x (1 - 21.875%) = 16.406%
Example
Corp with $5M gross income, $2.5M expenses, $2M from foreign customers, $3M QBAI:
DEI: $5M - $2.5M = $2.5M
Routine return: 10% x $3M = $300K
DII: $2.5M - $300K = $2.2M
Foreign DEI ratio: $2M / $5M = 40%
FDII: $2.2M x 40% = $880K
Section 250 deduction (21.875%): $880K x 21.875% = $192,500
Tax savings: $192,500 x 21% = $40,425
DEI: $5M - $2.5M = $2.5M
Routine return: 10% x $3M = $300K
DII: $2.5M - $300K = $2.2M
Foreign DEI ratio: $2M / $5M = 40%
FDII: $2.2M x 40% = $880K
Section 250 deduction (21.875%): $880K x 21.875% = $192,500
Tax savings: $192,500 x 21% = $40,425
Sources and References (click to expand)
Extended
With vs Without FDII Comparison Calculator
Compare effective tax rates, tax savings, and multi-year FDII planning table with SVG bar chart
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With FDII vs Without FDII β Effective Tax Rate Comparison
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Tax Liability: Standard vs FDII Deduction
5-Year FDII Planning Projection
| Year | Gross Income | DEI | FDII | Deduction | Tax Savings |
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Frequently Asked Questions
What is FDII and who can claim it?
Foreign-Derived Intangible Income (FDII) is income that US C corporations earn from selling goods, licensing IP, or providing services to foreign customers, to the extent that income exceeds a 10% routine return on tangible assets (QBAI). The Section 250 deduction effectively taxes FDII at a reduced rate β 13.125% through 2025 (37.5% deduction), and 16.406% starting in 2026 (21.875% deduction per the TCJA step-down). Only domestic C corporations can claim the FDII deduction. S corporations, partnerships, and individuals are ineligible.
How is FDII calculated step by step?
Step 1: Calculate Deduction-Eligible Income (DEI) = gross income minus COGS and expenses, excluding: Subpart F income, GILTI, financial services income, and certain other items. Step 2: Calculate QBAI (Qualified Business Asset Investment) = average tax basis of tangible depreciable property used in a US trade or business. Step 3: Deemed Intangible Income (DII) = DEI minus 10% of QBAI (the "routine return" on tangible assets). Step 4: FDII = DII x (Foreign-Derived DEI / Total DEI). Step 5: Section 250 deduction = 21.875% of FDII (post-2025 rate).
What income qualifies as "foreign-derived"?
Income is foreign-derived if it is from: (1) sales of property to foreign persons for use abroad, (2) licenses of property to foreign persons for use abroad, (3) services provided to foreign persons located outside the US, (4) services related to property located outside the US, (5) services provided to a foreign branch of a US company if related to work performed abroad. Sales to foreign subsidiaries of US companies can also qualify if the end customer is a foreign person using the property abroad.
How does the FDII deduction change after 2025?
The TCJA included a phase-down of the FDII deduction. Through 2025, the deduction was 37.5% of FDII, resulting in an effective tax rate of about 13.125% (21% x 62.5%). Starting in 2026, the deduction drops to 21.875%, resulting in an effective rate of about 16.406% (21% x 78.125%). This is still lower than the standard 21% corporate rate, but the benefit is reduced. Congress has discussed further modifications, so monitor legislative changes.
Can the FDII deduction be limited?
Yes. The Section 250 deduction (which covers both FDII and GILTI) cannot exceed taxable income for the year. If a corporation has a taxable loss, the deduction is reduced or eliminated. Additionally, the FDII deduction does not affect the calculation for alternative minimum tax purposes under CAMT (Corporate Alternative Minimum Tax) applicable to large corporations. The FDII and GILTI deductions may also be limited by the CAMT 15% minimum tax on large multinational corporations.