Tax Insight

Proposed rules clarify Section 250 property dispositions

Insight
5 minute read
August 24, 2026

What happened?

Treasury and the IRS on August 20 published proposed regulations under Section 250 addressing the scope of the new exclusion from deduction eligible income (DEI) for certain property dispositions. Section 250(b)(3)(A)(i)(VII), as amended, excludes from DEI income and gain from sales or other dispositions of intangible property and any other property of a type that is subject to depreciation, amortization, or depletion by the seller. The proposed regulations are largely consistent with Notice 2025-78, issued in December 2025, which addressed similar issues, while adding definitions, examples, and anti-abuse rules. The proposed regulations also clarify that FDDEI is a subset of DEI and thus cannot exceed DEI.

Why is it relevant?

The proposed regulations may require taxpayers to reassess positions taken under the statute or in reliance on Notice 2025-78. Notably, the proposed regulations define an ‘excluded seller’ to include a partnership, whether domestic or foreign, a provision that was not included in Notice 2025-78, and may affect dispositions of property held through partnerships. The proposed regulations also provide additional guidance on when property is treated as depreciable or amortizable and when a transaction constitutes a sale or other disposition. These rules rejected comments advocating for treating sales of previously depreciated property that has been refurbished, remanufactured, or converted to inventory as DEI. Certain implementation questions were not addressed but will be addressed in forthcoming guidance, including the allocation of deductions in determining DEI, the treatment of losses, and the treatment of deferred income from prior dispositions.

Actions to consider

Domestic corporations claiming the Section 250 deduction should review dispositions occurring after June 16, 2025, including dispositions of property held directly through partnerships and transactions involving intellectual property, software, previously depreciated or amortized business assets, inventory conversions, and related-party transfers, to assess whether amounts treated as DEI or FDDEI remain supportable.

Companies should consider providing comments on the proposed regulations, which are due by October 5, 2026.