Montana taxes long-term capital gains at its own lower rates, 3.0% and 4.1%, instead of the 5.65% top income tax rate, and its constitution bans any tax on the sale of real property. A 1031 exchange in Montana defers both the federal tax and that 4.1%, but a state rule keeps the deferred gain Montana-source: exchange into another state, move away, and Montana still taxes it when the gain is finally recognized.
Reviewed by Jon Hilley, CEO & Founder of 1031 Specialists. Last reviewed September 29, 2026.
| State tax on real estate gains | Net long-term capital gains taxed at 3.0% and 4.1%; ordinary income at 4.7% and 5.65% (2026) |
|---|---|
| Long-term capital gains treatment | 3.0% on the first $95,000 joint / $47,500 single (reduced by other taxable income), 4.1% above; brackets rise in 2027 |
| Nonresident withholding at closing | No state withholding on individual sellers |
| Withholding form | Not applicable. Nonresidents report the sale on a Montana Form 2 return |
| Transfer or conveyance tax (a 1031 does not defer it) | None. Banned by Article VIII, Section 17 of the Montana Constitution |
| Clawback on out-of-state replacement property | Yes. Deferred Montana-source gain is taxed when recognized federally (ARM 42.2.308) |
| Conforms to Section 1031 | Yes |
Table of contents
- How much is capital gains tax on real estate in Montana?
- Montana tax on a $300,000 gain: worked example
- Does Montana withhold tax from nonresident sellers?
- Montana transfer taxes: banned by the constitution
- The Montana clawback: ARM 42.2.308
- Montana's 2027 capital gains bracket change
- Ranch, land and recreational property exchanges
- Moving into or out of Montana
- Where Montana 1031 exchanges happen
- Federal 1031 rules that apply in Montana
- Common Montana 1031 exchange mistakes
- Start your Montana 1031 exchange
- Frequently asked questions
- Sources
How much is capital gains tax on real estate in Montana?
Montana is one of the few states with a separate, lower rate for long-term capital gains. Under MCA 15-30-2103, net long-term capital gains (as defined in Internal Revenue Code section 1222) are taxed at:
- Joint filers: 3.0% on the first $95,000, reduced by your other (nonqualified) taxable income, and 4.1% on the rest.
- Single filers: 3.0% on the first $47,500, reduced the same way, and 4.1% above. Head of household uses $71,250.
Other income is taxed at 4.7% up to the same thresholds and 5.65% above them for 2026, after House Bill 337 cut the top rate from 5.9%. Because the 3.0% band shrinks dollar for dollar as your ordinary income rises, most sellers with a salary or rental income above $95,000 (joint) pay 4.1% on the entire gain.
Depreciation recapture follows the federal definition. On a typical rental, the unrecaptured §1250 gain is part of the federal long-term capital gain, so Montana taxes it at the capital gains rate rather than at 5.65%. Montana has no local income taxes.
Federally, the gain is taxed at up to 20% (above $613,700 of 2026 joint taxable income, $545,500 single), recapture at up to 25%, and the 3.8% net investment income tax applies above $250,000 joint MAGI ($200,000 single).
Montana tax on a $300,000 gain: worked example
Assumptions: a $300,000 long-term gain on a Montana investment property, $100,000 of it unrecaptured §1250 depreciation, a married couple filing jointly already in the top federal bracket, with other Montana taxable income above $95,000 so the 3.0% band is used up.
| Line | Math | Tax |
|---|---|---|
| Unrecaptured §1250 gain (federal) | 25% x $100,000 | $25,000 |
| Long-term capital gain (federal) | 20% x $200,000 | $40,000 |
| Net investment income tax | 3.8% x $300,000 | $11,400 |
| Federal subtotal | $76,400 | |
| Montana capital gains tax | 4.1% x $300,000 | $12,300 |
| Total deferred by a full 1031 exchange | $88,700 |
A couple with little other income would pay 3.0% on up to $95,000 of the gain and save about $1,000 of Montana tax, which does not change the case for exchanging. Try your own numbers in the 1031 exchange calculator and the depreciation recapture calculator.
Does Montana withhold tax from nonresident sellers?
Montana does not require escrow to withhold state income tax when an individual nonresident sells Montana real estate, so exchange proceeds can go straight to your intermediary. The gain is still Montana-source income. A nonresident with a taxable sale files a Montana Form 2 and pays at the 3.0% and 4.1% rates. In a fully deferred exchange, nothing is recognized, but Montana keeps a claim on the deferred gain (next sections).
Foreign sellers face federal FIRPTA withholding regardless of state; our guide for foreign sellers of U.S. real estate explains the certificate process.
Montana transfer taxes: banned by the constitution
Montana has no real estate transfer tax, and it cannot adopt one without amending its constitution. Article VIII, Section 17, added by Constitutional Initiative 105 in November 2010, says the state or any local government "may not impose any tax, including a sales tax, on the sale or transfer of real property." Sellers pay title, escrow and county recording costs only.
That makes Montana cheap to trade in and out of compared with neighbors like Washington, where state REET on a $2 million sale is about $31,600. Since there is no transfer tax to defer, the exchange question in Montana is purely about income tax.
The Montana clawback: ARM 42.2.308
Montana follows Section 1031 because its income tax starts from federal adjusted gross income. The clawback comes from an administrative rule, ARM 42.2.308, effective April 7, 2006, which covers nonresidents who relinquish Montana property in a 1031 exchange.
The rule says the nonresident "must report the deferred Montana source income realized on the relinquishment of the Montana property if and when the gain is recognized for federal income tax purposes." In plain terms:
- You sell a Missoula apartment building, exchange into a Boise retail property, and move to Idaho.
- Years later you sell the Boise property in a taxable sale. The gain deferred from the Missoula building is Montana-source income, and you file a Montana nonresident return to pay it.
- The Montana amount is capped: it "will never exceed the gain recognized for federal income tax purposes." If a later partial exchange defers some of the gain again, Montana waits too.
Montana residents are taxed on all income anyway, so the rule matters mainly for people who leave. Keep the original exchange records, including the Montana gain deferred, with your permanent tax file. Holding the replacement until death and passing it to heirs with a basis step-up avoids the recognition event; see our guide to swap till you drop.
Montana's 2027 capital gains bracket change
The current 3.0% bands are labeled temporary in MCA 15-30-2103 and run through December 31, 2026. Starting January 1, 2027, the 3.0% band widens to $130,000 for joint filers, $97,500 for head of household and $65,000 for single filers, and the brackets are indexed for inflation after that. The 4.1% top rate does not change.
For a top-bracket seller the change is worth little, because other income still uses up the 3.0% band. For a retiree with modest income who is choosing between a taxable sale in late 2026 and one in early 2027, waiting can move about $35,000 more of gain into the 3.0% band and save roughly $385 of Montana tax. That is rarely a reason to delay an exchange, but it matters if you are cashing out part of the proceeds as boot.
Ranch, land and recreational property exchanges
A large share of Montana exchanges involve raw land, ranches and recreational property rather than apartment buildings. All U.S. real estate held for investment or business use is like-kind to all other U.S. real estate, so a Paradise Valley ranch can be exchanged for a warehouse in Billings or net-leased retail anywhere in the country. Personal property sold with a ranch, such as equipment and livestock, is not real property and does not qualify, so allocate the price in the contract.
Cabins near Whitefish, Big Sky or Flathead Lake are a frequent problem. A property used mainly by the family is not held for investment. Rent it at fair value and keep personal use limited before relying on an exchange. If you want to buy the replacement ranch before your sale closes, read our guide to the reverse 1031 exchange.
Moving into or out of Montana
Leaving Montana. Common destinations are Wyoming, South Dakota and Nevada, all without an individual income tax, plus Idaho. The move ends Montana's tax on new appreciation but not on the gain you deferred from Montana property, which ARM 42.2.308 taxes when it is recognized.
Moving to Montana. New residents are taxed on all income, including gain from out-of-state property sold after the move, at the 3.0% and 4.1% rates. If your property came from an exchange in California or Oregon, those states' clawbacks (FTB 3840 and Schedule OR-24) keep running, and credits decide which state collects.
Selling Montana property as a nonresident. The gain is Montana-source, taxed at the capital gains rates on a Montana Form 2 return, with no withholding at closing.
Where Montana 1031 exchanges happen
Bozeman and the Gallatin Valley have seen the fastest price growth and the most large exchanges, with owners of older rentals trading into commercial or out-of-state property. Missoula has steady multifamily and student housing trades. Billings, the largest city, anchors commercial and industrial exchanges in eastern Montana. The Flathead Valley (Kalispell and Whitefish) and Big Sky produce resort and recreational exchanges, and ranch land trades statewide. We do not yet have a Montana city guide; our team works with title companies across the state.
Federal 1031 rules that apply in Montana
After closing, you have 45 days to identify replacement property in writing and 180 days to acquire it, or until your return due date if that comes first. A qualified intermediary must hold the proceeds. Buy at least as much as you sold and replace the debt paid off, or the difference is taxable boot. Read our 1031 exchange guides and check your list with the 45-day identification validator.
Common Montana 1031 exchange mistakes
- Assuming a move ends Montana's claim. Under ARM 42.2.308, the deferred Montana gain is taxed when recognized, wherever you live.
- Skipping the exchange because 4.1% seems small. The Montana line is $12,300 on a $300,000 gain, but the federal tax is $76,400.
- Including equipment, livestock or irrigation equipment in a ranch price. Personal property does not qualify for a 1031. Allocate it separately.
- Exchanging a family cabin. Mostly personal use means it is not investment property.
- Losing the paper trail. The Montana gain may not be taxed for decades. Keep the exchange documents and basis records permanently.
Start your Montana 1031 exchange
Bring us in when the sale goes under contract. We draft the exchange agreement for your title company, hold the funds, and track your deadlines, then give you a complete record of the Montana gain deferred. Start your exchange or book a free intro call.
Frequently asked questions
How can I avoid capital gains tax on real estate in Montana?
A 1031 exchange into like-kind investment property defers both the federal tax and Montana's 3.0% or 4.1% capital gains tax. If you exchange into another state and move, Montana still taxes the deferred Montana gain when it is recognized for federal purposes.
What is the Montana capital gains tax rate on real estate?
Montana taxes net long-term capital gains at 3.0% on the first $95,000 for joint filers ($47,500 single), reduced by other taxable income, and 4.1% above that. Ordinary income is taxed at 4.7% and 5.65% in 2026.
Does Montana have a real estate transfer tax?
No. Article VIII, Section 17 of the Montana Constitution prohibits the state and local governments from taxing the sale or transfer of real property.
Is there Montana withholding when a nonresident sells real estate?
Montana does not require state withholding at closing for individual nonresident sellers. The gain is still Montana-source income and is reported on a Montana return in the year it is recognized.
What is the Montana 1031 clawback?
Under ARM 42.2.308, a nonresident who exchanges Montana property must report the deferred Montana-source gain when it is recognized for federal tax purposes, for example when the out-of-state replacement is sold in a taxable sale. The Montana amount cannot exceed the federal gain recognized.
Are Montana capital gains brackets changing in 2027?
Yes. The 3.0% band widens to $130,000 for joint filers and $65,000 for single filers on January 1, 2027, and is indexed for inflation afterward. The 4.1% rate stays the same.
Sources
- MCA 15-30-2103: Capital gains tax rates
- Montana Department of Revenue: 2026 rate changes (HB 337)
- ARM 42.2.308: Nonresident Montana source income in a Section 1031 exchange
- Montana Constitution Art. VIII, Sec. 17: Prohibition on real property transfer taxes
Related: Idaho, Wyoming, North Dakota, Washington, and all 50 states.
General information on Montana and federal tax rules, not tax or legal advice. Review your own sale with a CPA or attorney.
