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.
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.
(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.
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).
Under regulations prescribed by the Secretary—
(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.
(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.)
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".
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.
Pub. L. 99–514, title IV, §413(c), Oct. 22, 1986, 100 Stat. 2229, provided that:
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.
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."
|§ 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|
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