MontanaSB 5369th Legislature, Regular Session (2025)SenateWALLET

Revise income tax laws to provide conforming changes for prior legislation

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Bill Overview

Analyzed Economic Effects

20 provisions identified: 9 benefits, 6 costs, 5 mixed.

Bigger Montana break for 529 savings

You can reduce Montana income by up to $3,000 per filer ($6,000 if married filing jointly) for contributions to Montana 529 accounts owned by you, your spouse, or your Montana‑resident child. Spouses filing jointly can split contributions evenly. Qualified withdrawals for education costs are not taxed. Education expenses include tuition, fees, books, and some student loan payments. Certain rollovers from a 529 to a Roth IRA are treated as qualified under federal rules. Contributions remain subject to Montana recapture rules.

Credit for fixing historic buildings

If you own a certified historic building in Montana and make qualified rehab work, you can claim a state credit based on the federal rehab credit. Couples may not split the credit unless the property is used by a small business corporation or partnership they own.

Federal interest and railroad benefits untaxed

Interest from U.S. government obligations and related exempt‑interest dividends are not taxed by Montana. Railroad retirement benefits that federal law exempts are also not taxed by Montana.

No Montana tax on park sale gains

If you sell or exchange a mobile home park and recognize a gain, you can subtract that gain from Montana income. This cuts state tax on qualifying sales.

Senior subtraction grows and credit deadlines

If you are age 65 or older, you can subtract $5,500 from Montana income. The amount increases each year with inflation. For the elderly property tax credit, file with your tax return or by April 15 if you do not file one. Include receipts for tax billed or rent paid. The department may grant extensions, a personal representative may file, and you can fix claims within 3 years. If a federal holiday shifts the IRS date but not in Montana, you may file the next business day.

Some Montana payments are tax-free

Scholarships from approved student scholarship organizations are not taxed by Montana. Payments to private landowners for allowing public access to public land are not taxed. Payments from the Montana end of watch trust are also tax‑free.

Tax break for ABLE contributions

You can reduce Montana income by up to $3,000 per filer ($6,000 if married filing jointly) for contributions to Montana ABLE accounts owned by you, your spouse, or your Montana‑resident child. Eligible contributors also include the designated beneficiary and close relatives such as a parent, grandparent, sibling, or child. Contributions are subject to recapture if rules are broken.

Tax breaks for Montana service members

Active‑duty pay for residents who entered service from Montana is not taxed. Certain National Guard duty under Title 10 or Title 32 is also not taxed. Listed veterans’ bonus payments are tax‑free, and taxes paid on them can be refunded with an amended return. For military retirement, eligible residents can subtract the smaller of their Montana‑source wage income or 50% of their pension, plus up to 50% of survivor benefits. You can claim that subtraction for five straight years after meeting residency rules. The military pension rules and definitions end on December 31, 2033.

Businesses can deduct wages despite credits

Montana lets you deduct wages, salaries, and other business expenses even if you reduced them to claim a federal tax credit. Partnerships and S corporations take this deduction at the entity level.

No Montana break for QBI

If you claimed the federal Qualified Business Income (QBI) deduction, you must add that amount back when you figure Montana taxable income. Owners of pass‑through businesses pay Montana tax as if the federal QBI write‑off did not exist.

Home buyer savings: breaks and penalties

If your first‑time home buyer account received contributions before January 1, 2024, the interest and eligible withdrawals for a first home are not taxed by Montana. But withdrawals used for non‑eligible costs are added to Montana income.

Medical savings: tax breaks and limits

Contributions to a Montana medical care savings account, the account’s earnings, and withdrawals for eligible medical or long‑term care costs are subtracted from Montana income. Withdrawals for non‑medical purposes are added to Montana income.

Higher withholding on mineral royalties

Payers must withhold at Montana’s highest marginal income tax rate on each mineral royalty payment, not a flat 6%. More cash is withheld now and reconciled on your return.

Montana curbs state-tax and credit write-offs

If you itemize and deducted state income taxes on your federal return, Montana makes you add back some or all of that deduction, up to the amount that would reduce your federal itemized deductions to the standard deduction. Also, if an item helped you claim a Montana tax credit, you must add that item back when computing Montana income. These rules prevent double benefits.

S-corp tax add-back for owners

If your S corporation paid federal tax and reduced your distributive share, Montana makes you add that reduction back to income. This increases Montana taxable income for those shareholders.

Applies to 2024 taxes; probate step ended

These tax changes apply to tax years that begin after December 31, 2023. The law also ends a probate step by repealing the Department of Revenue certificate requirement in section 72‑3‑1006.

New rules on estate and trust payouts

Montana recalculates the subtraction for estate or trust distributions to beneficiaries using Montana’s additions and subtractions, which can lower your Montana income. At the same time, if the estate or trust took a distribution deduction on its federal return, that amount is added back to the beneficiary’s Montana income. These rules align state tax with how distributions are handled.

Rules for refunds and recovered deductions

If you included a state or local income tax refund in federal income and did not already deduct it in Montana, you can subtract it on your Montana return. If you recover an amount that never reduced your Montana tax when first deducted, you can subtract the recovery. But if the earlier deduction did lower your Montana tax, you must add the recovery to Montana income.

Out-of-state bond interest now taxed

Interest from other states’ or cities’ bonds and related exempt‑interest dividends is taxable in Montana, unless federal law exempts it. Expect higher Montana income when you receive that interest.

Title plant depreciation added back

If you claimed depreciation or amortization on a title plant, Montana adds that deduction back to your taxable income.

Sponsors & Cosponsors

Sponsor

Greg Hertz
Republican • Senate

Cosponsors

George Nikolakakos
Republican • House

Roll Call Votes

All Roll Calls

Yes: 291 • No: 1

Senate vote • 4/15/2025

Do Concur

Yes: 97 • No: 0

Senate vote • 4/14/2025