---
kind: "section"
citation: "26 U.S.C. § 1254"
title: "26"
title_heading: "Internal Revenue Code"
number: "1254"
heading: "Gain from disposition of interest in oil, gas, geothermal, or other mineral properties"
release: "119-102"
date: "2026-07-12"
url: "https://uscodex.org/usc/26/1254"
units:
  - "Subtitle A — Income Taxes"
  - "Chapter 1 — Normal Taxes and Surtaxes"
  - "Subchapter P — Capital Gains and Losses"
  - "Part IV — Special Rules for Determining Capital Gains and Losses"
---

# §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](/usc/26/317.md?p=a) is disposed of, the lesser of—
    - (A) the aggregate amount of—
      - (i) expenditures which have been deducted by the [taxpayer](/usc/26/1313.md?p=b) or any person under section [263](/usc/26/263.md), [616](/usc/26/616.md), or [617](/usc/26/617.md) with respect to such [property](/usc/26/317.md?p=a) and which, but for such deduction, would have been included in the adjusted basis of such [property](/usc/26/317.md?p=a), and
      - (ii) the deductions for depletion under [section 611](/usc/26/611.md) which reduced the adjusted basis of such [property](/usc/26/317.md?p=a), 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](/usc/26/424.md?p=c-1), the fair market [value](/usc/26/851.md?p=c-4) of such [property](/usc/26/317.md?p=a), over
      - (ii) the adjusted basis of such [property](/usc/26/317.md?p=a),

    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-1)—
    - (A) In the case of the [disposition](/usc/26/424.md?p=c-1) of a portion of section 1254 [property](/usc/26/317.md?p=a) (other than an undivided [interest](/usc/26/856.md?p=f-1)), the entire amount of the aggregate expenditures or deductions described in [paragraph (1)(A)](#a-1-A) with respect to such [property](/usc/26/317.md?p=a) shall be treated as allocable to such portion to the extent of the amount of the gain to which [paragraph (1)](#a-1) applies.
    - (B) In the case of the [disposition](/usc/26/424.md?p=c-1) of an undivided [interest](/usc/26/856.md?p=f-1) in a section 1254 [property](/usc/26/317.md?p=a) (or a portion thereof), a proportionate part of the expenditures or deductions described in [paragraph (1)(A)](#a-1-A) with respect to such [property](/usc/26/317.md?p=a) shall be treated as allocable to such undivided [interest](/usc/26/856.md?p=f-1) to the extent of the amount of the gain to which [paragraph (1)](#a-1) applies.

    This paragraph shall not apply to any expenditures to the extent the [taxpayer](/usc/26/1313.md?p=b) establishes to the satisfaction of the Secretary that such expenditures do not relate to the portion (or [interest](/usc/26/856.md?p=f-1) therein) disposed of.

  - (3) **Section 1254 property—** The term “section 1254 [property](/usc/26/317.md?p=a)” means any [property](/usc/26/317.md?p=a) (within the meaning of [section 614](/usc/26/614.md)) if—
    - (A) any expenditures described in [paragraph (1)(A)](#a-1-A) are properly chargeable to such [property](/usc/26/317.md?p=a), or
    - (B) the adjusted basis of such [property](/usc/26/317.md?p=a) 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)](#a-1-A-i) shall be properly adjusted for amounts included in gross income under [section 617(b)(1)(A)](/usc/26/617.md?p=b-1-A).
- (b) **Special rules under regulations—** Under regulations prescribed by the Secretary—
  - (1) rules similar to the rule of [subsection (g)](/usc/26/617.md?p=g) of section 617 and to the rules of subsections [(b)](/usc/26/1245.md?p=b) and [(c)](/usc/26/1245.md?p=c) of section 1245 shall be applied for purposes of this section; and
  - (2) in the case of the [sale or exchange](/usc/26/864.md?p=c-8-D) of [stock](/usc/26/1504.md?p=a-4) in an [S corporation](/usc/26/1361.md?p=a-1), rules similar to the rules of [section 751](/usc/26/751.md) shall be applied to that portion of the excess of the amount realized over the adjusted basis of the [stock](/usc/26/1504.md?p=a-4) which is attributable to expenditures referred to in [subsection (a)(1)(A)](#a-1-A) of this section.

## Source credit

(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

### Amendments

1988—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: 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. 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 Date

Pub. 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.”