Montana Individual Income Tax: Key Information for Taxpayers
Montana residents and nonresidents are required to file an individual income tax return using Form 2, which includes reporting income sourced from within the state. The tax system distinguishes between Montana ordinary income and net long-term capital gains, each taxed at different rates.
Montana Source Income
- Montana source income includes income earned from work performed in Montana, income from real or personal property located in Montana, and income from business conducted in Montana.
- Residents are taxed on all income, regardless of where it was earned.
- Nonresidents and part-year residents must report only income sourced from Montana.
Net Long-Term Capital Gains Taxation
- Net long-term capital gains are taxed at lower rates than Montana ordinary income.
- A long-term capital gain results from the sale of assets held for more than one year, such as stocks, bonds, or real estate.
- Taxpayers must calculate a ratio of Montana source net long-term capital gains to total net long-term capital gains from all sources.
- This ratio is applied to the net long-term capital gains tax (calculated as if the taxpayer were a resident) to determine the Montana source net long-term capital gains tax.
Calculating Tax Liability
- Complete lines 1 through 12 on Form 2 to calculate total tax liability, which includes both Montana Ordinary Income Tax and Montana Net Long-Term Capital Gains Tax.
- Residents: The amount on line 13 is your total tax liability.
- Nonresidents and part-year residents: The tax is calculated based on Montana-sourced income only.
Special Considerations
- Montana source capital losses can offset Montana source short-term capital gains and vice versa.
- Business income from sole proprietorships, partnerships, or S corporations must be reported based on Montana-sourced earnings.
- Qualified dividends are included in Montana ordinary income.
Source:
Montana Individual Income Tax Return Form 2 Instructions
Publication 1: A Guide to Montana Tax Withholding and Estimated Payments
Disclaimer: Always verify information with official Federal or State Department of Revenue Forms and Instructions.