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ARTICLE · 10 JULY 2025

Congress Changes The FDII Deduction In The One Big Beautiful Bill

Holland & Hart LLP
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Congress made a number of changes in the One Big Beautiful Bill Act (H.R. 1), signed into law on July 4, 2025, impacting the Foreign-Derived Intangible Income (FDII) deduction in Section 250.

United StatesGovernment, Public Sector
Susan Combs
Susan Combs

Congress made a number of changes in the One Big Beautiful Bill Act (H.R. 1), signed into law on July 4, 2025, impacting the Foreign-Derived Intangible Income (FDII) deduction in Section 250. Click here for a link to a version of section 250 with changes redlined. Three of the changes stand out.

1. The deduction haircut is permanently set at 33.34%. The new rate is 33.34%. The current rate is 37.5% but Congress previously scheduled a reduction of the rate to 21.875% for taxable years beginning after December 31, 2025.

2. Congress changed the structure and terminology of the deduction formula. Under current law, the formula for computing the "FDII" deduction is:

FDII Deduction = 37.5% *((DEI – (10%*QBAI)) * (FDDEI/DEI))

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