Montana Capital Gains Tax on Real Estate

By Skyline Capital Investments · Updated October 26, 2026 · 7 min read

Does Montana have a capital gains tax?

Yes. Since tax year 2024, Montana has taxed net long-term capital gains at 3.0% and 4.1% instead of at its ordinary income rates, under section 15-30-2103 of the Montana Code. Gains on property you held for one year or less are not net long-term capital gains, so they are taxed with the rest of your income at 4.7% or 5.65% in 2026.

Montana uses the federal definition of net long-term capital gain in section 1222 of the Internal Revenue Code. A rental building you owned for more than a year almost always produces long-term gain, so most Montana apartment sellers fall under the lower capital gains rates.

Montana income tax and capital gains brackets for 2026

House Bill 337, passed in 2025, widened the 4.7% bracket and cut the top ordinary rate to 5.65% for 2026, according to the Montana Department of Revenue. It left the capital gains rates at 3.0% and 4.1% and moved the capital gains thresholds to match the new ordinary brackets.

• Gains above the 3.0% room are taxed at 4.1%.
• If your ordinary taxable income already meets or passes the threshold, every dollar of net long-term gain is taxed at 4.1%.
• For 2027, HB 337 moves the 4.7% bracket to $65,000 single, $97,500 head of household and $130,000 joint, and lowers the top ordinary rate to 5.4%. The thresholds are indexed for inflation after that.

How Montana figures the rate on your gain

Montana applies your ordinary income first and the gain second. The law calls income that is not net long-term capital gain “nonqualified taxable income.” Subtract it from your filing-status threshold, and whatever is left is the slice of gain taxed at 3.0%. The rest is taxed at 4.1%.

For a working owner, the 3.0% slice is small or gone. A couple with $60,000 of Montana ordinary taxable income and a $300,000 gain has $35,000 of room under the $95,000 joint threshold. That $35,000 is taxed at 3.0% ($1,050), and the other $265,000 at 4.1% ($10,865), for $11,915 in Montana tax. A couple with $150,000 of ordinary income pays 4.1% on all of it.

So for planning, treat 4.1% as the Montana rate on a building sale. It is still lower than the 5.65% you would pay if the same dollars were wages or rent.

How Montana and federal capital gains tax add up

You pay both, figured separately. Federal long-term gain is taxed at 0%, 15% or 20%, and under Revenue Procedure 2025-32 the 20% rate starts at $613,700 of taxable income on a joint return and $545,500 for a single filer in 2026. Gain equal to depreciation you took on the building is unrecaptured Section 1250 gain, taxed federally at your ordinary rate but no higher than 25%.

The 3.8% net investment income tax applies on top of that once modified adjusted gross income passes $250,000 for a joint return or $200,000 for a single filer, unless the rental is part of a real estate professional’s trade or business. Montana has no surtax of its own on investment income.

Montana starts from federal income, so the federal gain figure flows into your Montana return. Montana then pulls the net long-term capital gain out and taxes it at the 3.0% and 4.1% rates.

Depreciation recapture in Montana

Unrecaptured Section 1250 gain is part of net long-term capital gain under the federal definition Montana uses, so on a straight-line building it falls under the 3.0% and 4.1% rates. Federally that same slice can be taxed at up to 25%. Montana gives it no separate treatment.

Recapture that the Code treats as ordinary income is different. If a cost segregation study split out appliances, carpet or site work as 5-, 7- or 15-year property, the gain on those items up to the depreciation you took is ordinary income under Section 1245. Montana taxes that at its ordinary rates of 4.7% and 5.65% for 2026, and it raises your nonqualified taxable income, which can push the rest of the gain into the 4.1% rate.

Montana’s 2025 Form 2 instructions say depreciation must be the same for federal and Montana purposes. Your Montana basis therefore matches your federal basis, including any bonus depreciation, which keeps the state math simple compared with states that make you keep a second schedule.

Nonresidents selling Montana property

Gain on Montana real estate is Montana-source income, so a nonresident who sells a building in Missoula or Bozeman files a Montana nonresident return. Montana figures the tax as if you were a resident on all your income, then multiplies it by the share of your income that is Montana-source, using Schedule II of Form 2.

Montana’s 2025 Form 2 instructions describe state withholding on wages, pensions and IRA payments and on certain mineral royalties, but not on real estate closings. Ask your title company to confirm what it will collect at your closing, and plan to pay the Montana tax through estimated payments or with your return.

If the building is owned by a partnership, S corporation or disregarded entity, a different rule applies. The entity must withhold Montana tax on a nonresident owner’s Montana-source share of at least $1,000, unless the owner signs Form PT-AGR, is included in a composite return or the entity makes the pass-through entity tax election.

Worked example: selling a $2M apartment building in Montana

A married couple filing jointly sells an 18-unit building in Missoula for $2,000,000 and pays $110,000 in commission and closing costs, so the amount realized is $1,890,000. They paid $1,050,000 for it and have taken $400,000 of straight-line depreciation, for an adjusted basis of $650,000. The gain is $1,240,000: $400,000 of unrecaptured Section 1250 gain and $840,000 of other long-term gain. They have $220,000 of other taxable income on both returns and owe $950,000 on the mortgage.

Federal: the $400,000 of Section 1250 gain sits on top of their $220,000 of income. The part up to $403,550 is taxed at 24% ($44,052) and the rest at the 25% cap ($54,113), for $98,165. The $840,000 of long-term gain starts at $620,000 of income, above the $613,700 line, so it is all taxed at 20%: $168,000. The 3.8% net investment income tax on $1,240,000 is $47,120. Federal total: $313,285.

Montana: their $220,000 of ordinary income is already above the $95,000 threshold, so the whole $1,240,000 of net long-term capital gain is taxed at 4.1%: $50,840. The combined tax is $364,125, about 29% of the gain. After paying off the loan, the couple clears $940,000 before tax and about $575,875 after.

What the 2024 rate change is worth on a sale

The separate capital gains rates save a Montana seller real money. If the same $1,240,000 were taxed at the 5.65% top ordinary rate for 2026, the Montana bill would be $70,060. At 4.1% it is $50,840, a difference of $19,220 on one sale.

That gap shrinks in 2027, when the top ordinary rate falls to 5.4%, while the capital gains rates stay at 3.0% and 4.1%. Owners comparing markets should also remember that Wyoming, next door, has no personal income tax, so a Montana sale still costs more at the state level than a Wyoming one.

How a 1031 exchange changes the Montana tax

A properly structured 1031 exchange defers the Montana tax as well as the federal tax, because Montana starts from federal income. In the Missoula example, buying a replacement worth at least $1,890,000 and reinvesting all $940,000 of net cash would push the entire $364,125 into the future.

Montana keeps a claim on that gain if you buy outside the state. Under Administrative Rule 42.2.308, gain on Montana property given up in an exchange stays Montana-source income, and you report it to Montana when it is finally recognized for federal purposes, even if by then you live somewhere else. Our page on the 1031 exchange in Montana walks through that rule and the common exchange paths.

Any cash you take out, or debt you are relieved of without replacing it, is boot and is taxed now by both the IRS and Montana. The 1031 exchange calculator and the capital gains tax calculator run the federal side for your own figures.

Ways Montana sellers lower or delay the tax

Most options delay the tax rather than erase it.

• A 1031 exchange into another investment property, in Montana or elsewhere.
• An installment sale, which spreads the gain across several years; it helps most if some years would leave room in the 3.0% slice.
• Selling in 2027 or later if other income is mostly ordinary, since the wider 2027 brackets give more room at 4.7% and a larger 3.0% capital gains slice.
• Holding the building until death, which gives heirs a stepped-up basis for federal and Montana purposes.
• Keeping records of every capital improvement, since each dollar added to basis cuts the gain taxed at 4.1% plus the federal rate.

Selling a Montana apartment building

Skyline buys apartment buildings with five or more units in Montana, from Billings and Missoula to Bozeman, Great Falls, Helena and Kalispell. We buy directly, close on your timeline, and can work inside 1031 deadlines. If you plan to exchange, we can set a closing date that gives you time to line up the replacement first.

For the yearly carrying cost a buyer will look at, see our page on the property tax rate in Montana, and for the notice, deposit and eviction rules that come with your tenants, Montana landlord-tenant law for apartment owners.