Montana reformed its income tax in 2021 (SB 399): from 7 brackets with a 6.75% top rate to a simplified two-rate system. The rates are 4.7% on income up to $20,500 (single) and 5.9% above $20,500 (single). Military retirement income is fully exempt. Montana taxes Social Security income — unlike many neighboring states, Montana includes Social Security in taxable income consistent with federal treatment. Montana has no state sales tax — a significant benefit for consumers. Moving to Wyoming (no income tax, also no sales tax) saves the full Montana income tax rate.
At a glance
Key Facts
Montana Income Tax Brackets (2024)
Two-bracket system: 4.7% on income up to $20,500 (single) / $41,000 (MFJ); 5.9% on income above $20,500 (single) / $41,000 (MFJ). Brackets are adjusted annually for inflation. Previously 7 brackets with a 6.75% top rate — the 2021 reform (SB 399) was a significant simplification and rate reduction.
Social Security Taxation
Montana taxes Social Security income to the extent it is included in federal adjusted gross income (the federal 'combined income' test). Unlike many states that exempt all or most SS income, Montana provides no specific SS exemption. Higher-income retirees pay Montana tax on their SS income.
Military Retirement Exemption
Montana fully exempts military retirement income from Montana income tax — a significant benefit for retirees near Malmstrom AFB (Great Falls) and the Montana National Guard community.
Capital Gains Credit
Montana provides a capital gains credit equal to 2% of net capital gains (a credit, not a deduction). This reduces the effective Montana rate on capital gains: at 5.9% rate minus 2% credit = 3.9% effective Montana rate on capital gains. This is one of Montana's more favorable features for investors and business sellers.
No Sales Tax
Montana has no state sales tax and no local sales taxes. This is a major financial benefit — on a $50,000 vehicle purchase, a Montana buyer pays $0 in sales tax vs approximately $3,500 in Idaho (6% + local) or $4,250 in Wyoming (5.75% combined average).
No Estate or Inheritance Tax
Montana has no estate tax and no inheritance tax.
Property Tax
Montana property tax effective rate approximately 0.74% — below the national average. Montana's property tax system is complex with different classes of property (class 3 for residential, class 4 for commercial). Residential assessed at 100% of appraised value.
Introduction
Montana is one of only five states with no state sales tax, making it a unique tax environment in the Mountain West. Montana's income tax was significantly reformed in 2021 under SB 399, reducing the top rate from 6.75% to 5.9% and compressing seven brackets into two. For consumers, the zero sales tax is a major benefit — particularly on large purchases. For high earners, the 5.9% income tax rate is higher than several neighboring states. Montana's military retirement exemption and generally low cost of living in most of the state make it a popular retirement destination despite the income tax. This guide covers what Montana residents considering a move need to know.
Section 01
Montana Tax Structure: Income Tax vs Sales Tax Trade-off
Montana's tax structure involves an interesting trade-off vs neighboring states:
The No-Sales-Tax Advantage
Montana is one of five states (Oregon, New Hampshire, Delaware, Alaska) with no state sales tax. For high-consumption households or those making large purchases, this is a real financial benefit:
New car ($45,000): $0 Montana sales tax vs $2,700 in Idaho (6%) or $2,565 in Wyoming (5.7%)
RV or recreational vehicle ($80,000): $0 vs $4,800 in neighboring states
Annual household spending ($40,000 taxable): $0 vs approximately $2,400 saved vs states with 6% sales tax
The sales tax advantage is real but less significant than the income tax comparison for middle and higher earners.
Montana vs Wyoming for High Earners
Wyoming has no income tax AND no state sales tax (though Wyoming's combined rate including local taxes averages approximately 5.25%). For Montana residents earning $150,000:
Montana income tax: approximately $7,700 (4.7% on first $20,500 + 5.9% on remainder)
Wyoming income tax: $0
Net income tax savings by moving to Wyoming: ~$7,700/year
But Wyoming has higher property taxes (~0.56% vs Montana ~0.74%) — minor offset
Jackson Hole, Wyoming (adjacent to the Montana market) has become a destination for high-income Montana residents seeking to eliminate the state income tax while remaining in the Mountain West region.
Capital Gains: Montana's 2% Credit
Montana's 2% capital gains credit is one of the state's less-known but meaningful provisions. For a Montana resident selling a business or property with $1,000,000 in capital gains: state tax without credit: $59,000 (5.9%); Montana 2% credit: $20,000; net Montana capital gains tax: $39,000. This effective 3.9% rate is competitive — lower than most states' capital gains tax rates. Compared to California (13.3% on all cap gains) or Oregon (9.9%), Montana is dramatically better for capital gains events.
Section 02
Montana Residency Exit Rules
Montana uses domicile-based residency with a standard day-count alternative:
Montana Residency
Montana defines a resident as someone domiciled in Montana or a non-domiciliary who maintains a home in Montana and spends more than 7 months (approximately 214 days) in the state. The 7-month test is slightly higher than the more common 183-day standard. To exit Montana residency: establish domicile in the new state, change driver's license, voter registration, vehicle registration, and estate documents. Montana does not have a reputation for aggressive post-departure audits.
Montana's Part-Time Resident Issue
Montana has a significant second-home and seasonal resident population (Flathead Valley, Big Sky/Bozeman, Glacier area). Part-year residents who maintain a home in Montana and spend more than 7 months pay Montana tax as full-year residents; those spending fewer than 7 months are taxed only on Montana-source income. For wealthy out-of-state residents with Montana second homes: the 7-month rule means spending Memorial Day through early December in Montana without triggering full-year residency is possible — approximately 6 months and 3 weeks.
Montana domicile changes, capital gains credit planning, part-year residency issues, and partial-year returns require CPA guidance. TaxHub connects you with state tax specialists.
⚠ Not for simple single-state returns. Free filing is fine for straightforward W-2 situations.
Does Montana's no-sales-tax status benefit Canadians or tourists?
Montana borders Canada (Alberta, British Columbia, Saskatchewan) and sees significant cross-border shopping, particularly from Alberta (which has no provincial sales tax but GST/HST can apply) and BC (12% HST). Montana's zero sales tax has long attracted Canadian shoppers for large purchases — electronics, clothing, vehicles, recreational equipment. For Canadians with Montana property or those who cross regularly, the no-sales-tax environment is a genuine financial benefit. Montana vehicles can be titled and registered in Montana — a practice used by some wealthy buyers of RVs and exotic cars to avoid sales tax in their home states. The Montana LLC vehicle registration for out-of-state residents is a legal gray area and increasingly scrutinized by other states; Montana has moved to restrict this practice somewhat.
Q
How does Montana tax rental income from vacation properties?
Montana taxes rental income as ordinary income at regular Montana rates (4.7%/5.9%). Montana has no short-term rental specific tax beyond the regular income tax and standard lodging taxes. Airbnb and VRBO income earned in Montana is Montana-source income taxable in Montana regardless of where the owner lives — a non-resident who owns a vacation rental in Whitefish or Big Sky and earns rental income pays Montana income tax on that rental income (as a non-resident filing Form 2, Montana Non-Resident/Part-Year Resident Return). Montana's 2% capital gains credit applies when the vacation property is sold if it qualifies as a capital gain.
Q
Is Bozeman-area growth affecting Montana's tax structure?
Bozeman/Gallatin County has experienced some of the fastest population and home value growth in the US over the past decade — driven by tech remote workers, outdoor recreation migrants, and out-of-state buyers. This has dramatically increased property values and property tax assessments in the Bozeman area (nominal property taxes rising even at the same effective rate due to higher assessed values). Montana's income tax structure has not changed in direct response to Bozeman growth, but the local property tax burden in Gallatin County has effectively increased for homeowners as assessments rise. Montana's legislature has considered property tax relief measures but as of 2025–2026, the effective property tax rate in Bozeman remains competitive with out-of-state alternatives.
Disclaimer:This guide provides general tax information for educational purposes only. Montana income tax brackets and capital gains credit rules are subject to legislative change. This is not tax advice. Consult a CPA for Montana-specific tax planning.