§ 1254 Gain from disposition of interest in oil, gas, geothermal, or other mineral properties

OLRC 119-134 · eCFR 2026-10-19 · 7 regs · 4 amending Acts · cited by 4 sections

Enacted 1976 · Pub. L. 94-455 Amended · 4 Acts

19761978198219861988(a) General rule(b) Special rules under regulations
Connections Cited by 4 · Cites 6
§ 1254 Gain from disposition of interest in oil, gas, geothermal, or other mineral properties
§ 1.1254-0 Table of contents for section 1254 recapture rules.§ 1.1254-1 Treatment of gain from disposition of natural resource recapture property.§ 1.1254-2 Exceptions and limitations.§ 1.1254-3 Section 1254 costs immediately after certain acquisitions.§ 1.1254-4 Special rules for S corporations and their shareholders.§ 1.1254-5 Special rules for partnerships and their partners.§ 1.1254-6 Effective/applicability date.Prop. § 1.1254-5 Proposed 2014 · Special rules for partnerships and their partners.
Amended 1978, 1986
  • 1986 Pub. L. 99-514 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).
  • 1978 Pub. L. 95-618 Pub. L. 95–618, § 402(c)(3), substituted “oil, gas, or geothermal” for “oil or gas” in section catchline.

Cases: Southland Royalty Co. v. United States, 22 Cl. Ct. 525 (Ct. Cl. 1991); Louisiana Land & Exploration Co. v. Commissioner, 92 T.C. 1340 (1989)

Final rules 2

    (a) General rule

    Cases: Houston Oil & Minerals Corp. v. Commissioner, 922 F.2d 283 (5th Cir. 1991)

    Cited by 4

      (1) Ordinary income If any section 1254 property is disposed of, the lesser of—

      Amended 1978
      • 1978 Pub. L. 95-618 Pub. L. 95–618, § 402(c)(1), substituted “oil, gas, or geothermal property” for “oil or gas property” wherever appearing.
      Cited by 15

        (A) the aggregate amount of—

        Cited by 4

          (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

          Cited by 1

            (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)—

            Amended 1978
            • 1978 Pub. L. 95-618 Pub. L. 95–618, § 402(c)(1), substituted “oil, gas, or geothermal property” for “oil or gas property” wherever appearing.
            Cited by 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—

              “any property (within the meaning of section 614)” Opening words
              Textual readingANY OF= section 1254 property

              (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.

              Amended 1978
              • 1978 Pub. L. 95-618 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”.
              Cited by 1

                (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).

                Amended 1988

                (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.

                Amended 1982
                • 1982 Pub. L. 97-354 Pub. L. 97–354 substituted “an S corporation” for “an electing small business corporation (as defined in section 1371(b))”.