Title 26 — Internal Revenue CodeRelease 119-73
§57 Items of tax preference
Title 26 › Subtitle Subtitle A— - Income Taxes › Chapter CHAPTER 1— - NORMAL TAXES AND SURTAXES › Subchapter Subchapter A— - Determination of Tax Liability › Part PART VI— - ALTERNATIVE MINIMUM TAX › § 57
Summary
Lists certain tax benefits taxpayers must count as "tax-preference" items for special tax calculations. It says to count the extra depletion taken for each property — the amount by which the depletion deduction under section 611 is more than the property's adjusted basis at year end — but not depletion figured under section 613A(c). It also counts certain excess intangible drilling costs for oil, gas, and geothermal properties: if the taxpayer’s intangible drilling and development costs (allowed under section 263(c) or 291(b)) are more than what they would be if those costs were capitalized and recovered straight line, the excess above 65 percent of the taxpayer’s net income from those properties is a preference item. Net income from those properties is gross income (under section 613(a)) minus deductions, reduced by that excess. Those drilling-cost rules are applied separately to oil and gas versus geothermal properties. For oil and gas wells, the rules do not apply to taxpayers who are not integrated oil companies, and any reduction in alternative minimum taxable income caused by that exception is capped at 40 percent of AMTI determined before that reduction and before the alternative tax net operating loss deduction under section 56(a)(4). It also treats interest on certain tax‑exempt private activity bonds issued after August 7, 1986, as a preference item, reduced by any deduction that would have been allowed if that interest were taxable. Exempt‑interest dividends count as that interest to the extent of their share. A “specified private activity bond” means a private activity bond issued after August 7, 1986, whose interest is tax‑exempt, but several kinds of bonds are excluded (for example, qualified 501(c)(3) bonds; certain residential rental, mortgage, and veterans’ mortgage bonds meeting the listed conditions; older bonds issued before August 8, 1986; and bonds issued after December 31, 2008 and before January 1, 2011, with special rules for refundings). It also includes amounts that would have been preference items under prior rules in effect the day before the Tax Reform Act of 1986 (except for property covered by section 56(a)(1) or (5)), and for stock bought on or before the date the Creating Small Business Jobs Act of 2010 was enacted, 7 percent of the amount excluded under section 1202. “Straight line recovery of intangibles” means amortizing those costs evenly over a 120‑month period starting the month production begins, unless the taxpayer elects an alternative method allowed for cost depletion.
Full Legal Text
Title 26, §57
Internal Revenue Code — Source: USLM XML via OLRC
(a)For purposes of this part, the items of tax preference determined under this section are—
(1)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)(A)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)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)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)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)In the case of any oil or gas well—
(i)This paragraph shall not apply to any taxpayer which is not an integrated oil company (as defined in section 291(b)(4)).
(ii)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)
[(4)
(5)(A)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)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)(i)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 August 7, 1986, and the interest on which is not includible in gross income under section 103.
(ii)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)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)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 August 8, 1986.
(v)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)(I)For purposes of clause (i), the term “private activity bond” shall not include any bond issued after December 31, 2008, and before January 1, 2011.
(II)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)Subclause (II) shall not apply to any refunding bond which is issued to refund any bond which was issued after December 31, 2003, and before January 1, 2009.
(6)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)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)For purposes of paragraph (2) of subsection (a)—
(1)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)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).
Legislative History
Notes & Related Subsidiaries
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 Pub. L. 110–289, which was approved July 30, 2008. The date of the enactment of the Tax Reform Act of 1986, referred to in subsec. (a)(6), is the date of enactment of Pub. L. 99–514, which was approved Oct. 22, 1986. 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 Pub. L. 111–240, which was approved Sept. 27, 2010.
Prior Provisions
A prior section 57, added Pub. L. 91–172, title III, § 301(a), Dec. 30, 1969, 83 Stat. 581; amended Pub. L. 92–178, title III, §§ 303(b), 304(a)(1), (b)(1), (d), Dec. 10, 1971, 85 Stat. 522–524; Pub. L. 94–455, title III, § 301(c)(1)–(4)(A), (C), title XIX, §§ 1901(b)(33)(A), (B), 1906(b)(13)(A), Oct. 4, 1976, 90 Stat. 1550–1552, 1800, 1834; Pub. L. 95–30, title I, § 101(d)(5), title III, § 308(a), title IV, § 402(a)(5),
May 23, 1977, 91 Stat. 133, 153, 155; Pub. L. 95–600, title III, § 301(b)(2), title IV, §§ 402(b)(1), 421(b), title VII, § 701(b)(1), (3), (4), (f)(3)(D), Nov. 6, 1978, 92 Stat. 2820, 2868, 2874, 2898, 2899, 2901; Pub. L. 95–618, title IV, § 402(b), Nov. 9, 1978, 92 Stat. 3202; Pub. L. 96–222, title I, §§ 104(a)(4)(E), (F), 107(a)(1)(A), Apr. 1, 1980, 94 Stat. 217, 222; Pub. L. 96–596, § 3(a), Dec. 24, 1980, 94 Stat. 3475; Pub. L. 97–34, title I, § 121(c)(1), title II, §§ 205, 212(d)(2)(B), Aug. 13, 1981, 95 Stat. 197, 223, 239; Pub. L. 97–248, title II, §§ 201(b), 204(b), Sept. 3, 1982, 96 Stat. 416, 426; Pub. L. 97–354, § 5(a)(14), (15), Oct. 19, 1982, 96 Stat. 1693; Pub. L. 97–448, title I, § 102(b)(1)(A), (3), (4), Jan. 12, 1983, 96 Stat. 2369, 2370; Pub. L. 98–369, div. A, title I, §§ 16(b), 68(c), 111(e)(5)–(7), title V, § 555(a)(2), title VII, §§ 711(a)(3)(A), 722(a)(1),
July 18, 1984, 98 Stat. 505, 588, 633, 897, 942, 972; Pub. L. 99–121, title I, § 103(b)(1)(B), (7), Oct. 11, 1985, 99 Stat. 509, 510; Pub. L. 99–272, title XIII, § 13208(a), Apr. 7, 1986, 100 Stat. 321; Pub. L. 99–514, title XVIII, §§ 1804(k)(3)(B)–(D), 1809(a)(3), Oct. 22, 1986, 100 Stat. 2809, 2819, related to items of tax preference, prior to the general revision of this part by Pub. L. 99–514, § 701(a).
Amendments
2025—Subsec. (a)(7). Pub. L. 119–21 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). Pub. L. 113–295, § 221(a)(10), substituted “This paragraph” for “Effective with respect to taxable years beginning after
December 31, 1992, this paragraph”. Subsec. (a)(2)(E)(i). Pub. L. 113–295, § 221(a)(11)(A), substituted “This paragraph” for “In the case of any taxable year beginning after
December 31, 1992, this paragraph”. Subsec. (a)(2)(E)(ii). Pub. L. 113–295, § 221(a)(11)(B), struck out “(30 percent in case of taxable years beginning in 1993)” after “40 percent”. 2009—Subsec. (a)(5)(C)(vi). Pub. L. 111–5 added cl. (vi). 2008—Subsec. (a)(5)(C)(iii) to (v). Pub. L. 110–289 added cl. (iii) and redesignated former cls. (iii) and (iv) as (iv) and (v), respectively. 2003—Subsec. (a)(7). Pub. L. 108–27 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
December 31, 2000 (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). Pub. L. 105–206 inserted at end “In the case of stock the holding period of which begins after
December 31, 2000 (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). Pub. L. 105–34 substituted “42 percent” for “one-half”. 1996—Subsec. (a)(4). Pub. L. 104–188 struck out par. (4) which read as follows: “Reserves for losses on bad debts of financial institutions.—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). Pub. L. 103–66, § 13171(a), 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) In general.—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) Capital gain property.—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
July 1, 1992, in a taxable year beginning in 1992, such term shall not include any tangible personal property.” Subsec. (a)(8). Pub. L. 103–66, § 13171(a), redesignated par. (8) as (7). Pub. L. 103–66, § 13113(b)(1), added par. (8). 1992—Subsec. (a)(1). Pub. L. 102–486, § 1915(a)(1), inserted at end “Effective with respect to taxable years beginning after
December 31, 1992, this paragraph shall not apply to any deduction for depletion computed in accordance with section 613A(c).” Subsec. (a)(2)(E). Pub. L. 102–486, § 1915(b)(1), added subpar. (E). 1991—Subsec. (a)(6)(B). Pub. L. 102–227 inserted at end “In the case of a contribution made before
July 1, 1992, in a taxable year beginning in 1992, such term shall not include any tangible personal property.” 1990—Subsec. (a)(2)(D)(ii). Pub. L. 101–508, § 11815(b)(3), substituted “section 613(e)(2)” for “section 613(e)(3)”. Subsec. (a)(4). Pub. L. 101–508, § 11801(c)(12)(A), struck out “585 or” after “section”. Subsec. (a)(6)(B). Pub. L. 101–508, § 11344, 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). Pub. L. 100–647, § 1007(b)(14)(B), struck out par. (3) which related to incentive stock options. Subsec. (a)(5)(C)(i). Pub. L. 100–647, § 1007(c)(2), 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
August 7, 1986.” Subsec. (a)(5)(C)(iii). Pub. L. 100–647, § 1007(c)(1), inserted “(whether a current or advance refunding)” after “any refunding bond”. Subsec. (a)(6)(A). Pub. L. 100–647, § 1007(c)(3), inserted “or 642(c)” after “section 170”.
Statutory Notes and Related Subsidiaries
Effective Date
of 2025 Amendment Pub. L. 119–21, title VII, § 70431(a)(6), July 4, 2025, 139 Stat. 241, provided that: “(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].”
Effective Date
of 2014 AmendmentAmendment by Pub. L. 113–295 effective Dec. 19, 2014, subject to a
Savings Provision
, see section 221(b) of Pub. L. 113–295, set out as a note under section 1 of this title.
Effective Date
of 2009 AmendmentAmendment by Pub. L. 111–5 applicable to obligations issued after Dec. 31, 2008, see section 1503(c) of Pub. L. 111–5, set out as a note under section 56 of this title.
Effective Date
of 2008 AmendmentAmendment by Pub. L. 110–289 applicable to bonds issued after July 30, 2008, see section 3022(d)(1) of Pub. L. 110–289, set out as a note under section 56 of this title.
Effective Date
of 2003 AmendmentAmendment by Pub. L. 108–27 applicable to dispositions on or after May 6, 2003, see section 301(d)(3) of Pub. L. 108–27, set out as an Effective and Termination Dates of 2003 Amendment note under section 1 of this title.
Effective Date
of 1998 AmendmentAmendment by Pub. L. 105–206 effective, except as otherwise provided, as if included in the provisions of the Taxpayer Relief Act of 1997, Pub. L. 105–34, to which such amendment relates, see section 6024 of Pub. L. 105–206, set out as a note under section 1 of this title.
Effective Date
of 1997 AmendmentAmendment by Pub. L. 105–34 applicable to taxable years ending after May 6, 1997, see section 311(d) of Pub. L. 105–34, set out as a note under section 1 of this title.
Effective Date
of 1996 AmendmentAmendment by Pub. L. 104–188 applicable to taxable years beginning after Dec. 31, 1995, see section 1616(c) of Pub. L. 104–188, set out as a note under section 593 of this title.
Effective Date
of 1993 AmendmentAmendment by section 13113(b)(1) of Pub. L. 103–66 applicable to stock issued after Aug. 10, 1993, see section 13113(e) of Pub. L. 103–66, set out as a note under section 53 of this title. Amendment by section 13171(a) of Pub. L. 103–66 applicable to contributions made after June 30, 1992, 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 Dec. 31, 1992, see section 13171(d) of Pub. L. 103–66, set out as a note under section 53 of this title.
Effective Date
of 1992 AmendmentAmendment by Pub. L. 102–486 applicable to taxable years beginning after Dec. 31, 1992, see section 1915(d) of Pub. L. 102–486, set out as a note under section 56 of this title.
Effective Date
of 1988 AmendmentAmendment by section 1007(b)(14)(B) of Pub. L. 100–647 applicable with respect to options exercised after Dec. 31, 1987, see section 1007(b)(14)(C) of Pub. L. 100–647, set out as a note under section 56 of this title. Amendment by section 1007(c) of 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
Section applicable to taxable years beginning after Dec. 31, 1986, with certain exceptions and qualifications, but subsec. (a)(6) not to apply to any deduction attributable to contributions made before Aug. 16, 1986, see section 701(f) of Pub. L. 99–514, set out as a note under section 55 of this title.
Savings Provision
For provisions that nothing in amendment by section 11801 and 11815 of Pub. L. 101–508 be construed to affect treatment of certain transactions occurring, property acquired, or items of income, loss, deduction, or credit taken into account prior to Nov. 5, 1990, for purposes of determining liability for tax for periods ending after Nov. 5, 1990, see section 11821(b) of Pub. L. 101–508, set out as a note under section 45K of this title. Transitional Provisions Pub. L. 100–647, title I, § 1007(f)(4), Nov. 10, 1988, 102 Stat. 3433, provided that: “(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.” Applicability of Certain
Amendments
by Pub. L. 99–514 in Relation to Treaty Obligations of United StatesFor applicability of amendment by section 701(a) of Pub. L. 99–514 [enacting this section] notwithstanding any treaty obligation of the United States in effect on Oct. 22, 1986, with provision that for such purposes any amendment by title I of Pub. L. 100–647 be treated as if it had been included in the provision of Pub. L. 99–514 to which such amendment relates, see section 1012(aa)(2), (4) of Pub. L. 100–647, set out as a note under section 861 of this title.
Reference
Citations & Metadata
Citation
26 U.S.C. § 57
Title 26 — Internal Revenue Code
Last Updated
Apr 6, 2026
Release point: 119-73