Treasury and the IRS have issued proposed regulations clarifying how certain property sales affect Foreign-Derived Deduction Eligible Income (FDDEI), formerly known as Foreign-Derived Intangible Income (FDII).
The proposed rules under REG-117130-25 exclude income and gain from the sale or other disposition of intangible property and property subject to depreciation, amortisation, or depletion from Deduction Eligible Income (DEI). The exclusion generally applies to transactions occurring after 16 June 2025.
This update matters if your US corporation sells intellectual property, brand assets, machinery, equipment, or other business property to foreign buyers.
The key USA tax update in brief
The Federal Register proposed regulations clarify the following:
- Income and gain from qualifying intangible property sales is excluded from DEI.
- Income and gain from sales of depreciable, amortisable, or depletable property is also excluded.
- Excluded income cannot form part of FDDEI.
- Ordinary-course inventory sales generally remain eligible if the other FDDEI requirements are met.
- Leases and licences are not treated as sales for this exclusion.
- The rules include deemed sales, deemed dispositions, and transactions subject to Section 367(d).
- Taxpayers may rely on the proposed rules if they apply them fully and consistently.
- Comments must be submitted by 5 October 2026.
The proposed regulations are expected to be finalised by 4 January 2027. However, the underlying statutory exclusion already applies to relevant dispositions after 16 June 2025.
Understand what has changed under Section 250
Section 250 allows an eligible domestic corporation to claim a deduction for qualifying foreign-derived income. For tax years beginning after 31 December 2025, the deduction is generally 33.34% of FDDEI, subject to the applicable rules and limitations.
The new exclusion targets income from selling property that represents an underlying business asset or intangible value. It prevents a corporation from claiming the FDDEI deduction on a foreign sale of property that was used or held as a business asset.
The proposed regulations create the term “excluded property sales income.” This includes income and gain from the sale or other disposition of:
- Intangible property under Section 367(d)(4).
- Property that is, or has been, subject to depreciation under Section 167.
- Property subject to amortisation.
- Property subject to depletion under Section 611.
This classification depends on the property and the seller’s tax treatment. It does not depend only on whether the asset is fully depreciated or whether the buyer is located outside the United States.
Separate inventory sales from business asset sales
Do not treat every foreign sale of physical property as excluded.
The proposed rules distinguish between:
- Ordinary inventory sales, which generally remain eligible.
- Sales of property used in the seller’s business, which may be excluded.
For example, a US manufacturer may sell products that it has always held as inventory. Those sales can remain within DEI and may qualify for FDDEI if the products are sold to a foreign person for foreign use.
However, if the manufacturer sells machinery that it used in its own production facility, the gain may be excluded. That machinery was a depreciable business asset in the seller’s hands.
This distinction is essential for ecommerce groups, manufacturers, software companies, and digital businesses with mixed revenue streams.
Worked example: a fully amortised brand asset sold to a foreign buyer
Assume a US domestic corporation owns a trademark connected to its online brand.
The company acquired the trademark several years ago and fully amortised its tax basis. The adjusted basis is now zero. In 2026, the company sells the trademark to an unrelated foreign corporation for $500,000.
The transaction produces:
- Sale proceeds: $500,000
- Adjusted tax basis: $0
- Taxable gain: $500,000
- Buyer: Foreign corporation
- Transaction date: 2026
The buyer’s foreign location does not make the gain FDDEI. Because the trademark is intangible property under the relevant Section 250 rules, the $500,000 gain is treated as excluded property sales income.
The corporation must therefore remove the gain from DEI. It cannot include the gain in FDDEI and cannot claim the Section 250 deduction on that amount.
For illustration, if the transaction had otherwise generated qualifying FDDEI and the 33.34% rate applied, the potential deduction on $500,000 would have been $166,700 before other limitations. Under the proposed rules, that deduction is unavailable because the gain is excluded from DEI.
The same principle can apply to a fully depreciated machine. A zero adjusted basis does not make the asset eligible. If the machine was of a character subject to depreciation in the seller’s hands, the gain from its foreign sale is excluded.
A licence may be treated differently from a sale
The proposed regulations preserve an important distinction between a sale and a licence.
A transaction that is genuinely a licence under general federal income tax principles is not treated as a sale for this specific exclusion. Income from a qualifying foreign licence may therefore remain within DEI and potentially FDDEI.
For example:
- A non-exclusive, revocable licence of software may remain eligible.
- A lease of equipment may remain eligible.
- An agreement transferring substantially all rights in a trademark or copyright may be treated as a sale, even if the contract calls itself a licence.
This is why you must review the legal and tax substance of the arrangement. The label on the contract is not decisive.
The proposed regulations also clarify that a sale of a copyrighted article, such as a copy of software or digital content, is not automatically a sale of intangible property. A sale of the underlying copyright is different from a sale of a copy.
What this means for UK and international sellers
A UK company selling products into the United States does not automatically claim the Section 250 deduction. FDDEI applies primarily to eligible US domestic corporations and certain individuals making a Section 962 election.
However, the update still matters if your international structure includes:
- A US C corporation.
- A US subsidiary purchasing or selling intellectual property.
- A US LLC taxed as a corporation.
- A UK parent with a US corporate subsidiary.
- A cross-border ecommerce group transferring brand rights or operating assets.
- A digital business with US and UK entities.
A London-based ecommerce company may sell inventory to US customers through a US subsidiary. Ordinary inventory revenue may be treated differently from the sale of the brand, warehouse equipment, or software rights used by the business.
Your US LLC’s tax classification also matters. An LLC taxed as a partnership or disregarded entity does not claim the Section 250 corporate deduction in the same way as a domestic C corporation.
Separately, if your business acts as one of the us importers of record, customs responsibilities, im
