US Code

Public Law 119-73 (01/23/2026)

26 U.S.C. § 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.

Pub. L. 94–455, title II, § 205(a)90 Stat. 1533Pub. L. 95–618, title IV, § 402(c)(1)92 Stat. 3202Pub. L. 97–354, § 5(a)(37)96 Stat. 1696Pub. L. 99–514, title IV, § 413(a)100 Stat. 2227Pub. L. 100–647, title I, § 1004(c)102 Stat. 3387(Added , , ; amended –(3), , ; , , ; , , ; , , .)

Editorial Notes

Amendments

Pub. L. 100–6471988—Subsec. (a)(4). added par. (4).

Pub. L. 99–5141986— 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).

Pub. L. 97–3541982—Subsec. (b)(2). substituted “an S corporation” for “an electing small business corporation (as defined in section 1371(b))”.

Pub. L. 95–618, § 402(c)(3)1978—, substituted “oil, gas, or geothermal” for “oil or gas” in section catchline.

Pub. L. 95–618, § 402(c)(1)Subsec. (a)(1), (2). , substituted “oil, gas, or geothermal property” for “oil or gas property” wherever appearing.

Pub. L. 95–618, § 402(c)(2)Subsec. (a)(3). , 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

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

Effective Date of 1986 Amendment

Pub. L. 99–514, title IV, § 413(c)100 Stat. 2229

“(1)

In general .—

section 617 of this titleThe amendments made by this section [amending this section and ] shall apply to any disposition of property which is placed in service by the taxpayer after .
“(2)

Exception for binding contracts .—

The amendments made by this section shall not apply to any disposition of property placed in service after , if such property was acquired pursuant to a written contract which was entered into before , and which was binding at all times thereafter.”
, , , provided that:

Effective Date of 1982 Amendment

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

Effective Date of 1978 Amendment

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

Effective Date

Pub. L. 94–455, title II, § 205(e)90 Stat. 1535

“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 .”
, , , provided that: