Senate Bill 399, passed during the 67th Legislature in 2021, made significant changes to Montana’s income tax system effective Tax Year 2024. Beginning in Tax Year 2024, taxpayers will see changes to filing statuses, tax brackets, and the calculation of Montana taxable income. This is a summary of those changes.
Filing Statuses. Under the new law, taxpayers must use the same filing status used on the federal tax return. These filing statuses include married filing jointly, qualifying surviving spouse, head of household, single, and married filing separately. When filing the Montana Form 2, each of these filing statuses is considered the same as the federal filing status. Married taxpayers can no longer file separately from their spouses unless they are filing separately for federal purposes. Capital losses, passive losses, and excess business losses will no longer be allocated by spouse, and will be treated the same as they are for federal purposes.
Filing Requirements. The Montana tax filing requirement will follow the federal tax filing requirement after considering any Montana additions and subtractions to federal taxable income.
New Tax Brackets, Rates, and Long-Term Capital Gains Rates. Montana will have two tax brackets based on a taxpayer’s filing status and type of income. Much like the federal system, Montana will begin taxing long-term capital gains at a lower rate than ordinary income. Ordinary income is considered all taxable income that is not a net long-term capital gain. The 2024 tax tables are found here.
In 2021, the top marginal tax rate was reduced from 6.75% to 6.5% beginning with Tax Year 2024. However, the top marginal ordinary tax rate was further reduced from 6.5% to 5.9% during the 2023 Legislative Session.
Montana Taxable Income Calculation. Taxpayers will use their federal taxable income (not including the federal qualified business deduction) as the base for calculating their Montana taxable income. Montana’s current system uses the federal adjusted gross income as the base for determining Montana taxable income. With this change, items of income and deduction will no longer need to be recalculated for purposes of determining Montana taxable income. Taxable Social Security Income and net operating losses are included in Montana taxable income to the extent that they are included in federal taxable income.
New Subtraction. Taxpayers aged 65 and over will receive a $5,500 subtraction from federal taxable income.
Repealed Deductions. Several deductions are repealed, including:
Montana First-Time Homebuyers Accounts Closed. Tax Year 2023 is the last year that a taxpayer may establish or deposit into a Montana First Time Homebuyer Account. Beginning in 2024, taxpayers may only deduct deposits or interest on deposits from contributions on the account made before January 1, 2024. Deposits must be withdrawn within 10 years.
Transition adjustments. A taxpayer may make an election on a timely filed (including extensions) 2024 Form 2 to reconcile the difference in the federal and Montana amounts of passive activity losses, short-term and long-term capital losses, and any differing bases. If the Montana carryover amount or basis is smaller than the federal amount, the taxpayer will make a positive adjustment to reconcile the difference. If the Montana carryover amount or basis is larger than the federal amount, the taxpayer will make a negative adjustment to reconcile the difference.