# § 57. Items of tax preference
**(a)** **General rule** For purposes of this part, the items of tax preference determined under this section are—
**(1)** **Depletion** With respect to each property (as defined in section 614), the excess of the deduction for depletion allowable under section 611 for the taxable year over the adjusted basis of the property at the end of the taxable year (determined without regard to the depletion deduction for the taxable year). This paragraph shall not apply to any deduction for depletion computed in accordance with section 613A(c).
**(2)** **Intangible drilling costs**
**(A)** **In general** With respect to all oil, gas, and geothermal properties of the taxpayer, the amount (if any) by which the amount of the excess intangible drilling costs arising in the taxable year is greater than 65 percent of the net income of the taxpayer from oil, gas, and geothermal properties for the taxable year.
**(B)** **Excess intangible drilling costs** For purposes of subparagraph (A), the amount of the excess intangible drilling costs arising in the taxable year is the excess of—
**(i)** the intangible drilling and development costs paid or incurred in connection with oil, gas, and geothermal wells (other than costs incurred in drilling a nonproductive well) allowable under section 263(c) or 291(b) for the taxable year, over
**(ii)** the amount which would have been allowable for the taxable year if such costs had been capitalized and straight line recovery of intangibles (as defined in subsection (b)) had been used with respect to such costs.
**(C)** **Net income from oil, gas, and geothermal properties** For purposes of subparagraph (A), the amount of the net income of the taxpayer from oil, gas, and geothermal properties for the taxable year is the excess of—
**(i)** the aggregate amount of gross income (within the meaning of section 613(a)) from all oil, gas, and geothermal properties of the taxpayer received or accrued by the taxpayer during the taxable year, over
**(ii)** the amount of any deductions allocable to such properties reduced by the excess described in subparagraph (B) for such taxable year.
**(D)** **Paragraph applied separately with respect to geothermal properties and oil and gas properties** This paragraph shall be applied separately with respect to—
**(i)** all oil and gas properties which are not described in clause (ii), and
**(ii)** all properties which are geothermal deposits (as defined in section 613(e)(2)).
**(E)** **Exception for independent producers** In the case of any oil or gas well—
**(i)** **In general** This paragraph shall not apply to any taxpayer which is not an integrated oil company (as defined in section 291(b)(4)).
**(ii)** **Limitation on benefit** The reduction in alternative minimum taxable income by reason of clause (i) for any taxable year shall not exceed 40 percent of the alternative minimum taxable income for such year determined without regard to clause (i) and the alternative tax net operating loss deduction under section 56(a)(4).
**[(3)** **Repealed. Pub. L. 100–647, title I, § 1007(b)(14)(B), Nov. 10, 1988, 102 Stat. 3430]**
**[(4)** **Repealed. Pub. L. 104–188, title I, § 1616(b)(3), Aug. 20, 1996, 110 Stat. 1856]**
**(5)** **Tax-exempt interest**
**(A)** **In general** Interest on specified private activity bonds reduced by any deduction (not allowable in computing the regular tax) which would have been allowable if such interest were includible in gross income.
**(B)** **Treatment of exempt-interest dividends** Under regulations prescribed by the Secretary, any exempt-interest dividend (as defined in section 852(b)(5)(A)) shall be treated as interest on a specified private activity bond to the extent of its proportionate share of the interest on such bonds received by the company paying such dividend.
**(C)** **Specified private activity bonds** The preceding sentence shall not apply to any refunding bond unless such preceding sentence applied to the refunded bond (or in the case of a series of refundings, the original bond).
**(i)** **In general** August 7, 1986
For purposes of this part, the term “specified private activity bond” means any private activity bond (as defined in section 141) which is issued after , and the interest on which is not includible in gross income under section 103.
**(ii)** **Exception for qualified 501(c)(3) bonds** For purposes of clause (i), the term “private activity bond” shall not include any qualified 501(c)(3) bond (as defined in section 145).
**(iii)** **Exception for certain housing bonds** For purposes of clause (i), the term “private activity bond” shall not include any bond issued after the date of the enactment of this clause if such bond is—
**(I)** an exempt facility bond issued as part of an issue 95 percent or more of the net proceeds of which are to be used to provide qualified residential rental projects (as defined in section 142(d)),
**(II)** a qualified mortgage bond (as defined in section 143(a)), or
**(III)** a qualified veterans’ mortgage bond (as defined in section 143(b)).
**(iv)** **Exception for refundings** August 8, 1986
For purposes of clause (i), the term “private activity bond” shall not include any refunding bond (whether a current or advance refunding) if the refunded bond (or in the case of a series of refundings, the original bond) was issued before .
**(v)** **Certain bonds issued before September 1, 1986** For purposes of this subparagraph, a bond issued before September 1, 1986, shall be treated as issued before August 8, 1986, unless such bond would be a private activity bond if—
**(I)** paragraphs (1) and (2) of section 141(b) were applied by substituting “25 percent” for “10 percent” each place it appears,
**(II)** paragraphs (3), (4), and (5) of section 141(b) did not apply, and
**(III)** subparagraph (B) of section 141(c)(1) did not apply.
**(vi)** **Exception for bonds issued in 2009 and 2010**
**(I)** **In general** December 31, 2008January 1, 2011
For purposes of clause (i), the term “private activity bond” shall not include any bond issued after , and before .
**(II)** **Treatment of refunding bonds** For purposes of subclause (I), a refunding bond (whether a current or advance refunding) shall be treated as issued on the date of the issuance of the refunded bond (or in the case of a series of refundings, the original bond).
**(III)** **Exception for certain refunding bonds** December 31, 2003January 1, 2009
Subclause (II) shall not apply to any refunding bond which is issued to refund any bond which was issued after , and before .
**(6)** **Accelerated depreciation or amortization on certain property placed in service before January 1, 1987** The amounts which would be treated as items of tax preference with respect to the taxpayer under paragraphs (2), (3), (4), and (12) of this subsection (as in effect on the day before the date of the enactment of the Tax Reform Act of 1986). The preceding sentence shall not apply to any property to which section 56(a)(1) or (5) applies.
**(7)** **Exclusion for gains on sale of certain small business stock** In the case of stock acquired on or before the date of the enactment of the Creating Small Business Jobs Act of 2010, an amount equal to 7 percent of the amount excluded from gross income for the taxable year under section 1202.
**(b)** **Straight line recovery of intangibles defined** For purposes of paragraph (2) of subsection (a)—
**(1)** **In general** The term “straight line recovery of intangibles”, when used with respect to intangible drilling and development costs for any well, means (except in the case of an election under paragraph (2)) ratable amortization of such costs over the 120-month period beginning with the month in which production from such well begins.
**(2)** **Election** If the taxpayer elects with respect to the intangible drilling and development costs for any well, the term “straight line recovery of intangibles” means any method which would be permitted for purposes of determining cost depletion with respect to such well and which is selected by the taxpayer for purposes of subsection (a)(2).
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**Source Credit**: (Added Pub. L. 99–514, title VII, § 701(a), Oct. 22, 1986, 100 Stat. 2333; amended Pub. L. 100–647, title I, § 1007(b)(14)(B), (c), Nov. 10, 1988, 102 Stat. 3430, 3432; Pub. L. 101–508, title XI, §§ 11344, 11801(c)(12)(A), 11815(b)(3), Nov. 5, 1990, 104 Stat. 1388–472, 1388–527, 1388–558; Pub. L. 102–227, title I, § 112, Dec. 11, 1991, 105 Stat. 1689; Pub. L. 102–486, title XIX, § 1915(a)(1), (b)(1), Oct. 24, 1992, 106 Stat. 3023, 3024; Pub. L. 103–66, title XIII, §§ 13113(b)(1), 13171(a), Aug. 10, 1993, 107 Stat. 429, 454; Pub. L. 104–188, title I, § 1616(b)(3), Aug. 20, 1996, 110 Stat. 1856; Pub. L. 105–34, title III, § 311(b)(2)(B), Aug. 5, 1997, 111 Stat. 835; Pub. L. 105–206, title VI, § 6005(d)(3), July 22, 1998, 112 Stat. 805; Pub. L. 108–27, title III, § 301(b)(3), May 28, 2003, 117 Stat. 759; Pub. L. 110–289, div. C, title I, § 3022(a)(1), July 30, 2008, 122 Stat. 2893; Pub. L. 111–5, div. B, title I, § 1503(a), Feb. 17, 2009, 123 Stat. 354; Pub. L. 113–295, div. A, title II, § 221(a)(10), (11), Dec. 19, 2014, 128 Stat. 4038; Pub. L. 119–21, title VII, § 70431(a)(4)(A), July 4, 2025, 139 Stat. 240.)
## Editorial Notes
### References in Text
The date of the enactment of this clause, referred to in subsec. (a)(5)(C)(iii), is the date of enactment of , which was approved .
The date of the enactment of the Tax Reform Act of 1986, referred to in subsec. (a)(6), is the date of enactment of , which was approved .
The date of the enactment of the Creating Small Business Jobs Act of 2010, referred to in subsec. (a)(7), is the date of enactment of , which was approved .
### Prior Provisions
A prior section 57, added , , ; amended , §§ 303(b), 304(a)(1), (b)(1), (d), , ; –(4)(A), (C), title XIX, §§ 1901(b)(33)(A), (B), 1906(b)(13)(A), , , 1800, 1834; , title III, § 308(a), title IV, § 402(a)(5), , , 153, 155; , title IV, §§ 402(b)(1), 421(b), title VII, § 701(b)(1), (3), (4), (f)(3)(D), , , 2868, 2874, 2898, 2899, 2901; , , ; , §§ 104(a)(4)(E), (F), 107(a)(1)(A), , , 222; , , ; , title II, §§ 205, 212(d)(2)(B), , , 223, 239; , §§ 201(b), 204(b), , , 426; , (15), , ; , (3), (4), , , 2370; , §§ 16(b), 68(c), 111(e)(5)–(7), title V, § 555(a)(2), title VII, §§ 711(a)(3)(A), 722(a)(1), , , 588, 633, 897, 942, 972; , (7), , , 510; , , ; , §§ 1804(k)(3)(B)–(D), 1809(a)(3), , , 2819, related to items of tax preference, prior to the general revision of this part by .
### Amendments
2025—Subsec. (a)(7). substituted “In the case of stock acquired on or before the date of the enactment of the Creating Small Business Jobs Act of 2010, an amount” for “An amount”.
2014—Subsec. (a)(1). , substituted “This paragraph” for “Effective with respect to taxable years beginning after , this paragraph”.
Subsec. (a)(2)(E)(i). , substituted “This paragraph” for “In the case of any taxable year beginning after , this paragraph”.
Subsec. (a)(2)(E)(ii). , struck out “(30 percent in case of taxable years beginning in 1993)” after “40 percent”.
2009—Subsec. (a)(5)(C)(vi). added cl. (vi).
2008—Subsec. (a)(5)(C)(iii) to (v). added cl. (iii) and redesignated former cls. (iii) and (iv) as (iv) and (v), respectively.
2003—Subsec. (a)(7). substituted “7 percent” for “42 percent” after “An amount equal to” and struck out last sentence which read as follows: “In the case of stock the holding period of which begins after (determined with the application of the last sentence of section 1(h)(2)(B)), the preceding sentence shall be applied by substituting ‘28 percent’ for ‘42 percent’.”
1998—Subsec. (a)(7). inserted at end “In the case of stock the holding period of which begins after (determined with the application of the last sentence of section 1(h)(2)(B)), the preceding sentence shall be applied by substituting ‘28 percent’ for ‘42 percent’.”
1997—Subsec. (a)(7). substituted “42 percent” for “one-half”.
1996—Subsec. (a)(4). struck out par. (4) which read as follows: “.—In the case of a financial institution to which section 593 applies, the amount by which the deduction allowable for the taxable year for a reasonable addition to a reserve for bad debts exceeds the amount that would have been allowable had the institution maintained its bad debt reserve for all taxable years on the basis of actual experience.”
1993—Subsec. (a)(6), (7). , redesignated pars. (7) and (8) as (6) and (7), respectively, and struck out heading and text of former par. (6). Text read as follows:
“(A) .—The amount by which the deduction allowable under section 170 or 642(c) would be reduced if all capital gain property were taken into account at its adjusted basis.
“(B) .—For purposes of subparagraph (A), the term ‘capital gain property’ has the meaning given to such term by section 170(b)(1)(C)(iv). Such term shall not include any property to which an election under section 170(b)(1)(C)(iii) applies. In the case of any taxable year beginning in 1991, such term shall not include any tangible personal property. In the case of a contribution made before , in a taxable year beginning in 1992, such term shall not include any tangible personal property.”
Subsec. (a)(8). , redesignated par. (8) as (7).
, added par. (8).
1992—Subsec. (a)(1). , inserted at end “Effective with respect to taxable years beginning after , this paragraph shall not apply to any deduction for depletion computed in accordance with section 613A(c).”
Subsec. (a)(2)(E). , added subpar. (E).
1991—Subsec. (a)(6)(B). inserted at end “In the case of a contribution made before , in a taxable year beginning in 1992, such term shall not include any tangible personal property.”
1990—Subsec. (a)(2)(D)(ii). , substituted “section 613(e)(2)” for “section 613(e)(3)”.
Subsec. (a)(4). , struck out “585 or” after “section”.
Subsec. (a)(6)(B). , inserted at end “In the case of any taxable year beginning in 1991, such term shall not include any tangible personal property.”
1988—Subsec. (a)(3). , struck out par. (3) which related to incentive stock options.
Subsec. (a)(5)(C)(i). , amended cl. (i) generally. Prior to amendment, cl. (i) read as follows: “For purposes of this part, the term ‘specified private activity bonds’ means any private activity bond (as defined in section 141) issued after .”
Subsec. (a)(5)(C)(iii). , inserted “(whether a current or advance refunding)” after “any refunding bond”.
Subsec. (a)(6)(A). , inserted “or 642(c)” after “section 170”.
## Statutory Notes and Related Subsidiaries
### Effective Date of 2025 Amendment
> **“(A)** **In general.—** Except as provided in subparagraph (B), the amendments made by this subsection [amending this section and section 1202 of this title] shall apply to taxable years beginning after the date of the enactment of this Act [July 4, 2025].
>
> **“(B)** **Continued treatment as not item of tax preference.—** The amendments made by paragraph (4) [amending this section and section 1202 of this title] shall take effect as if included in the enactment of section 2011 of the Creating Small Business Jobs Act of 2010 [Pub. L. 111–240].”
, , , provided that:
### Effective Date of 2014 Amendment
Amendment by effective , subject to a savings provision, see , set out as a note under .
### Effective Date of 2009 Amendment
Amendment by applicable to obligations issued after , see , set out as a note under .
### Effective Date of 2008 Amendment
Amendment by applicable to bonds issued after , see , set out as a note under .
### Effective Date of 2003 Amendment
Amendment by applicable to dispositions on or after , see , set out as an Effective and Termination Dates of 2003 Amendment note under .
### Effective Date of 1998 Amendment
Amendment by effective, except as otherwise provided, as if included in the provisions of the Taxpayer Relief Act of 1997, , to which such amendment relates, see , set out as a note under .
### Effective Date of 1997 Amendment
Amendment by applicable to taxable years ending after , see , set out as a note under .
### Effective Date of 1996 Amendment
Amendment by applicable to taxable years beginning after , see , set out as a note under .
### Effective Date of 1993 Amendment
Amendment by applicable to stock issued after , see , set out as a note under .
Amendment by applicable to contributions made after , except that in case of any contribution of capital gain property which is not tangible personal property, such amendment applicable only if the contribution is made after , see , set out as a note under .
### Effective Date of 1992 Amendment
Amendment by applicable to taxable years beginning after , see , set out as a note under .
### Effective Date of 1988 Amendment
Amendment by applicable with respect to options exercised after , see , set out as a note under .
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
Section applicable to taxable years beginning after , with certain exceptions and qualifications, but subsec. (a)(6) not to apply to any deduction attributable to contributions made before , see , set out as a note under .
### Savings Provision
For provisions that nothing in amendment by sections 11801 and 11815 of be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to , for purposes of determining liability for tax for periods ending after , see , set out as a note under .
### Transitional Provisions
> **“(A)** If any property to which this paragraph applies is placed in service in a taxable year which begins before January 1, 1987, and ends on or after August 1, 1986, the item of tax preference determined under section 57(a) of the Internal Revenue Code of 1954 (as in effect on the day before the date of the enactment of the Tax Reform Act of 1986 [Oct. 22, 1986]) with respect to such property shall be the excess of—
>
> **“(i)** the amount allowable as a deduction for depreciation or amortization for such taxable year, over
>
> **“(ii)** the amount which would be determined for such taxable year under the rules of paragraph (1) or (5) (whichever is appropriate) of section 56(a) of the Internal Revenue Code of 1954 (as amended by the Tax Reform Act of 1986 [Pub. L. 99–514]).
>
> **“(B)** This paragraph shall apply to any property—
>
> **“(i)** which is described in paragraph (4) or (12) of section 57(a) of the Internal Revenue Code of 1954 (as so in effect), and
>
> **“(ii)** to which paragraph (1) or (5) of section 56(a) of the Internal Revenue Code of 1986 would apply if the taxable year referred to in subparagraph (A) began after December 31, 1986.”
, , , provided that:
### Applicability of Certain Amendments by Pub. L. 99–514 in Relation to Treaty Obligations of United States
For applicability of amendment by [enacting this section] notwithstanding any treaty obligation of the United States in effect on , with provision that for such purposes any amendment by title I of be treated as if it had been included in the provision of to which such amendment relates, see section 1012(aa)(2), (4) of , set out as a note under .