# § 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—
shall be treated as gain which is ordinary income. Such gain shall be recognized notwithstanding any other provision of this subtitle.
**(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,
**(2)** **Disposition of portion of property** For purposes of paragraph (1)—
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.
**(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.
**(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.
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**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.)
## Editorial Notes
### Amendments
1988—Subsec. (a)(4). added par. (4).
1986— 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). substituted “an S corporation” for “an electing small business corporation (as defined in section 1371(b))”.
1978—, substituted “oil, gas, or geothermal” for “oil or gas” in section catchline.
Subsec. (a)(1), (2). , substituted “oil, gas, or geothermal property” for “oil or gas property” wherever appearing.
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
Amendment 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
> **“(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.”
, , , provided that:
### Effective Date of 1982 Amendment
Amendment by applicable to taxable years beginning after , see , set out as an Effective Date note under .
### Effective Date of 1978 Amendment
Amendment 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
> “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: