Montana is one of the few states with its own, lower tax schedule for long-term capital gains. Gains on assets held more than one year are taxed at 3.0% and 4.1%, while wages, interest, qualified dividends and short-term gains follow the 4.7% and 5.65% ordinary schedule for 2026. The 3.0% band is shared with your ordinary income, so the more ordinary taxable income you have, the less of the gain gets the lowest rate.
This guide uses Montana Code Annotated 15-30-2103 (2025 edition), the Department of Revenue page on the 2026 and 2027 income tax changes, the Department's 2025 Form 2 instructions and two IRS pages, all read on 3 November 2026. Rates and rules are stated as those sources state them; the worked examples are our own arithmetic and are labelled as such.
Montana Code Annotated 15-30-2103 sets two schedules for 2026. Ordinary Montana taxable income is taxed at 4.7% up to a bracket limit and 5.65% above it. Net long-term capital gains are taxed at 3.0% up to the same limit, less your ordinary taxable income, and 4.1% above it. The Department of Revenue says the long-term rates remain at 3.0% and 4.1% and that the bill only adjusts the brackets to match the new ordinary-income ranges.
| Filing status | Ordinary income: 4.7% up to | Ordinary income above that | Long-term gains: 3.0% band (minus ordinary income) | Long-term gains above the band |
|---|---|---|---|---|
| Single, married filing separately | $47,500 | 5.65% | first $47,500 | 4.1% |
| Head of household | $71,250 | 5.65% | first $71,250 | 4.1% |
| Married filing jointly, surviving spouse | $95,000 | 5.65% | first $95,000 | 4.1% |
The statute defines net long-term capital gains by reference to section 1222 of the Internal Revenue Code, and defines nonqualified taxable income as Montana taxable income that is not net long-term capital gains. For comparison, the 2025 Form 2 instructions show the 2025 schedule for a single filer as 4.7% up to $21,100 and 5.9% above, with long-term gains taxed at 3% up to $21,100 minus ordinary income and 4.1% above. The 2025 figures apply to returns filed in 2026; the table above is for the 2026 tax year.
The long-term gains schedule is not a separate set of full brackets. The statute taxes the first slice of gains at 3.0%, where the slice is the bracket limit less your nonqualified (ordinary) taxable income, and everything above that at 4.1%. If your ordinary taxable income already equals or exceeds the limit for your filing status, the statute says all of the net long-term capital gains are taxed at 4.1%. The Department's instructions describe the same method: subtract your gains from total taxable income to find Montana ordinary income, then use that figure to decide how much of the gain falls in the 3% band.
The Department's bracket table notes that the taxable income used for the ordinary brackets does not include long-term capital gains, so a gain does not push your ordinary income into the 5.65% rate. It can only move gain from the 3.0% band into the 4.1% band.
The Form 2 instructions say your income on the Montana return begins with your federal adjusted gross income from Form 1040, so a gain reported on your federal return is already in your starting figure. The instructions define a net long-term capital gain as the net gain from the sale or exchange of a capital asset held for more than one year, and give stocks, bonds and real estate owned for more than one year as examples. Montana ordinary income is all taxable income that is not a net long-term capital gain, and it includes qualified dividends.
In the Form 2 tax calculation, line 2 asks for the net long-term capital gains subject to the federal net long-term capital gains tax, which the Department says is generally the lesser of federal Schedule D line 15 or Schedule D line 16. Short-term gains get no lower rate: the instructions say they are subject to the Montana ordinary income tax rate, in line with the IRS statement that net short-term gains are taxed as ordinary income.
Montana also lets a few specific gains be subtracted on Schedule I. The 2025 instructions include up to $50,000 of income or gain from selling at least 80 acres to a beginning farmer on a long-term contract at 9 percent or less interest, the capital gain from selling a mobile home park to a tenants' or residents' association, a 501(c)(3) organization or a housing authority, and gains or dividends from a Montana small business investment company if listed conditions are met. Each has conditions we have not reproduced, so read the instructions before relying on one.
These examples apply the 2026 statute to taxable income that already excludes the gain. They are our own calculations, not Department figures, and they ignore credits, other taxes and any rounding on the Department's forms.
| Filing status (2026) | Ordinary taxable income | Long-term gain | Tax on ordinary income | Tax on the gain | Total |
|---|---|---|---|---|---|
| Single | $20,000 | $40,000 | $940 | $1,337.50 | $2,277.50 |
| Single | $47,500 | $40,000 | $2,232.50 | $1,640 | $3,872.50 |
| Single | $70,000 | $40,000 | $3,503.75 | $1,640 | $5,143.75 |
| Married filing jointly | $60,000 | $100,000 | $2,820 | $3,715 | $6,535 |
In the first row, $20,000 of ordinary income leaves $27,500 of the 3.0% band, so $27,500 of the $40,000 gain is taxed at 3.0% and $12,500 at 4.1%. In the second and third rows ordinary income has used up the band, so the whole gain is taxed at 4.1%. In the last row, a married couple with $60,000 of ordinary income has $35,000 of band left.
We found no Montana capital loss rule of its own in the sources we read, apart from the nonresident netting rule below. Because Montana starts from federal adjusted gross income, we read a loss as flowing through the federal rules, but the Department does not say so in the pages we read. The IRS says that if capital losses exceed gains, the excess you can claim to lower your income is the lesser of $3,000 ($1,500 if married filing separately) or your total net loss, and a larger loss can be carried forward to later years. The IRS also says losses from the sale of personal-use property, such as a home or car, are not tax deductible.
The IRS says that if you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 if you file a joint return with your spouse. Montana starts from federal adjusted gross income, so our reading is that a gain excluded federally does not reach your Montana return, and a taxable remainder on a home held more than one year is a long-term gain taxed at 3.0% and 4.1%. The Department's instructions do not state this in so many words, so confirm it with the Department or a tax professional for a large sale.
For residents, the instructions say Montana source income includes all income, no matter where you earned it. Part-year residents calculate their tax like nonresidents, with income received while a resident counted as Montana source.
For capital gains, nonresidents, part-year residents and residents filing jointly with them use Schedule II. The Department says you apply a ratio of your Montana source net long-term capital gains to your net long-term capital gains from all sources to the Montana long-term gains tax figured as if you were a resident. Montana source income is income for work performed in Montana, from real or personal property located in Montana, and from business conducted in Montana, and gains on tangible property located in Montana are Montana source. In general, if a nonresident sold an interest in a publicly traded partnership doing business in Montana, some or all of the gain is Montana source, and the sale of an interest in a single-member limited liability company or other disregarded entity is treated as a sale of its assets.
If you are a resident filing jointly with a nonresident or part-year resident spouse, all of your own capital gains are sourced to Montana regardless of where they arose. The instructions also say Montana source long-term capital losses may offset Montana source short-term capital gains and vice versa; their example of a nonresident with a $13,000 Oregon long-term loss and a $10,000 Montana long-term gain reports the $10,000 Montana gain.
Our illustration of the ratio: a single filer with $30,000 of ordinary taxable income and a $40,000 total long-term gain would owe $1,447.50 on the gain as a resident ($17,500 at 3.0% and $22,500 at 4.1%). If only $10,000 of the gain is Montana source, the ratio is 25% and the Montana long-term gains tax is $361.88. This leaves out the ordinary-income side, which has its own ratio on Schedule II.
The instructions also say the credit for income taxes paid to another state must be calculated separately for ordinary income and for net long-term capital gains.
The Department says the House Bill 337 changes apply to tax years 2026 and 2027. For 2027 the statute lowers the top ordinary rate to 5.4% and widens the 4.7% bracket, while the capital gains rates stay at 3.0% and 4.1%.
| Filing status | 2027: 4.7% up to | 2027: rate above |
|---|---|---|
| Single | $65,000 | 5.4% |
| Head of household | $97,500 | 5.4% |
| Married filing jointly | $130,000 | 5.4% |
The version of 15-30-2103 effective January 1, 2027 also requires the Department to multiply the bracket amounts by a modified inflation factor by November 1 each year, rounded to the nearest $100. The statute text we read carries a note that the 2026 version terminates on December 31, 2026. Because the Department may publish adjusted brackets, check it before planning a 2027 sale; we did not find an adjusted 2027 table in the sources we read.