Statutes, codes, and regulations
United States Code
Title 26 - INTERNAL REVENUE CODESubtitle A - INCOME TAXESChapter 1 - NORMAL TAXES AND SURTAXESSubchapter P - CAPITAL GAINS AND LOSSES
Part IV - SPECIAL RULES FOR DETERMINING CAPITAL GAINS AND LOSSES
Section 1254 - Gain from disposition of interest in oil, gas, geothermal, or other mineral properties

26 U.S.C. § 1254

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Current through P.L. 118-106 (published on www.congress.gov on 10/04/2024)
Section 1254 - Gain from disposition of interest in oil, gas, geothermal, or other mineral properties
(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.

26 U.S.C. § 1254

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.

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 AMENDMENT Amendment 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 AMENDMENT Pub. 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 AMENDMENT Amendment 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 AMENDMENT Amendment 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."

Secretary
The term "Secretary" means the Secretary of the Treasury or his delegate.
corporation
The term "corporation" includes associations, joint-stock companies, and insurance companies.
person
The term "person" shall be construed to mean and include an individual, a trust, estate, partnership, association, company or corporation.
stock
The term "stock" includes shares in an association, joint-stock company, or insurance company.
taxpayer
The term "taxpayer" means any person subject to any internal revenue tax.