republic-os/legal/us/code/title-26/chapter-1/section-1254.md

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LegalText	26 U.S.C. § 1254	Gain from disposition of interest in oil, gas, geothermal, or other mineral properties	us	united_states_code	code_section	26	INTERNAL REVENUE CODE	1	NORMAL TAXES AND SURTAXES	1254	26 U.S.C. § 1254	current	119-100	2026-06-26	official	https://uscode.house.gov/download/releasepoints/us/pl/119/100/xml_usc26@119-100.zip	/us/usc/t26/s1254	data/legal/raw/us/code/title-26/usc26.xml	b3fc88e79fa3b56c8940a53f16f024bd49c2135c6ad8e2e86b5cadf65671d6d2	a261f094809116f42a96648a3d5eee80fa010379d67412551c21dd5c900b27f4	fb53519b9c2ba5cea8b731713f864fc7361a6b47ac35174635f4a47d26f88486	2026-07-04	official	legal us-code

26 U.S.C. § 1254 - Gain from disposition of interest in oil, gas, geothermal, or other mineral properties

Text

(a) General rule (1) Ordinary income If any section 1254 property is disposed of, the lesser of—

(A) the aggregate amount of—

(i) expenditures which have been deducted by the taxpayer or any person under section 263, 616, or 617 with respect to such property and which, but for such deduction, would have been included in the adjusted basis of such property, and

(ii) the deductions for depletion under section 611 which reduced the adjusted basis of such property, or

(B) the excess of—

(i) in the case of—

(I) a sale, exchange, or involuntary conversion, the amount realized, or

(II) in the case of any other disposition, the fair market value of such property, over

(ii) the adjusted basis of such property,

shall be treated as gain which is ordinary income. Such gain shall be recognized notwithstanding any other provision of this subtitle.

(2) Disposition of portion of property For purposes of paragraph (1)—

(A) In the case of the disposition of a portion of section 1254 property (other than an undivided interest), the entire amount of the aggregate expenditures or deductions described in paragraph (1)(A) with respect to such property shall be treated as allocable to such portion to the extent of the amount of the gain to which paragraph (1) applies.

(B) In the case of the disposition of an undivided interest in a section 1254 property (or a portion thereof), a proportionate part of the expenditures or deductions described in paragraph (1)(A) with respect to such property shall be treated as allocable to such undivided interest to the extent of the amount of the gain to which paragraph (1) applies.

This paragraph shall not apply to any expenditures to the extent the taxpayer establishes to the satisfaction of the Secretary that such expenditures do not relate to the portion (or interest therein) disposed of.

(3) Section 1254 property The term “section 1254 property” means any property (within the meaning of section 614) if—

(A) any expenditures described in paragraph (1)(A) are properly chargeable to such property, or

(B) the adjusted basis of such property includes adjustments for deductions for depletion under section 611.

(4) Adjustment for amounts included in gross income under section 617(b)(1)(A) The amount of the expenditures referred to in paragraph (1)(A)(i) shall be properly adjusted for amounts included in gross income under section 617(b)(1)(A).

(b) Special rules under regulations Under regulations prescribed by the Secretary—

(1) rules similar to the rule of subsection (g) of section 617 and to the rules of subsections (b) and (c) of section 1245 shall be applied for purposes of this section; and

(2) in the case of the sale or exchange of stock in an S corporation, rules similar to the rules of section 751 shall be applied to that portion of the excess of the amount realized over the adjusted basis of the stock which is attributable to expenditures referred to in subsection (a)(1)(A) of this section.

(Added Pub. L. 94–455, title II, § 205(a), Oct. 4, 1976, 90 Stat. 1533; amended Pub. L. 95–618, title IV, § 402(c)(1)–(3), Nov. 9, 1978, 92 Stat. 3202; Pub. L. 97–354, § 5(a)(37), Oct. 19, 1982, 96 Stat. 1696; Pub. L. 99–514, title IV, § 413(a), Oct. 22, 1986, 100 Stat. 2227; Pub. L. 100–647, title I, § 1004(c), Nov. 10, 1988, 102 Stat. 3387.)

Notes

Editorial Notes

Amendments1988—Subsec. (a)(4). Pub. L. 100–647 added par. (4). 1986—Pub. L. 99–514 amended section generally, substituting “geothermal, or other mineral properties” for “or geothermal property” in section catchline, revising and restating subsec. (a), pars. (1) to (4) as pars. (1) to (3), and reenacting subsec. (b) without change except for substituting “rule of subsection (g)” for “rules of subsection (g)” in par. (1). 1982—Subsec. (b)(2). Pub. L. 97–354 substituted “an S corporation” for “an electing small business corporation (as defined in section 1371(b))”. 1978—Pub. L. 95–618, § 402(c)(3), substituted “oil, gas, or geothermal” for “oil or gas” in section catchline. Subsec. (a)(1), (2). Pub. L. 95–618, § 402(c)(1), substituted “oil, gas, or geothermal property” for “oil or gas property” wherever appearing. Subsec. (a)(3). Pub. L. 95–618, § 402(c)(2), substituted “Oil, gas, or geothermal” for “Oil or gas” in heading and in text substituted “The term ‘oil, gas, or geothermal property’ means” for “The term ‘oil or gas property’ means”.

Statutory Notes and Related Subsidiaries

Effective Date of 1988 AmendmentAmendment by Pub. L. 100–647 effective, except as otherwise provided, as if included in the provision of the Tax Reform Act of 1986, Pub. L. 99–514, to which such amendment relates, see section 1019(a) of Pub. L. 100–647, set out as a note under section 1 of this title.

Effective Date of 1986 AmendmentPub. L. 99–514, title IV, § 413(c), Oct. 22, 1986, 100 Stat. 2229, provided that: “(1) In general.—The amendments made by this section [amending this section and section 617 of this title] shall apply to any disposition of property which is placed in service by the taxpayer after December 31, 1986. “(2) Exception for binding contracts.—The amendments made by this section shall not apply to any disposition of property placed in service after December 31, 1986, if such property was acquired pursuant to a written contract which was entered into before September 26, 1985, and which was binding at all times thereafter.”

Effective Date of 1982 AmendmentAmendment by Pub. L. 97–354 applicable to taxable years beginning after Dec. 31, 1982, see section 6(a) of Pub. L. 97–354, set out as an Effective Date note under section 1361 of this title.

Effective Date of 1978 AmendmentAmendment by Pub. L. 95–618 applicable with respect to wells commenced on or after Oct. 1, 1978, in taxable years ending on or after such date, see section 402(e) of Pub. L. 95–618, set out as a note under section 263 of this title.

Effective DatePub. L. 94–455, title II, § 205(e), Oct. 4, 1976, 90 Stat. 1535, provided that: “The amendments made by this section [enacting this section and amending sections 163, 170, 301, 312, 341, 453, and 751 of this title] shall apply with respect to taxable years ending after December 31, 1975.”