Updated October 8, 2026. Quick answer: Generally no, if you qualify for the federal exclusion. The Form 2 instructions say the Montana return “begins with your federal adjusted gross income as reported” on the federal return, so a gain excluded under section 121 stays out. Gain above it is a long-term capital gain, and for 2026 “The rates on long-term capital gains remain at 3.0% and 4.1%”.
Montana tax on home sale profit at a glance
| Item | What the documents say |
|---|---|
| Profit on your main home | Starts from federal adjusted gross income; the pages read do not mention section 121 |
| Rate on gain above the exclusion | Long-term capital gains: 3.0% up to a bracket, 4.1% above (unchanged for 2026) |
| Collected at the sale | None found in the documents read; the Realty Transfer Certificate says any gain on the transfer is Montana source income |
| Source | Montana Department of Revenue |
What the Montana documents say
The 2025 Form 2 instructions say income on the Montana return “begins with your federal adjusted gross income as reported” on the federal return. Under the federal statute, “Gross income shall not include gain from the sale or exchange” of a principal residence that meets the ownership and use tests, so an excluded gain never enters federal adjusted gross income. That is reasoning from two documents. The Montana pages read never name section 121.
The instructions define a net long-term capital gain as the net gain from the sale of a capital asset held for more than one year, and list among the examples sales of “real estate owned for more than one year”. They tax it at two rates, 3 percent up to a bracket and then 4.1 percent above it.
For 2026 the Department’s page on House Bill 337 says “The rates on long-term capital gains remain at 3.0% and 4.1%”, while for ordinary income “the highest marginal tax rate will decrease from 5.9% to 5.65%”.
What the federal exclusion requires
Most state answers start here. The statute says “Gross income shall not include gain from the sale or exchange” of property that, during the five years before the sale, you owned and used as your principal residence for periods adding up to two years or more. The limit is “shall not exceed $250,000”, or $500,000 for a husband and wife who make a joint return and meet the statute’s conditions. See CMG’s home sale taxes page and exclusion calculator.
A worked example at a $400,000 gain
An illustration, not a return: a married couple in Montana sells their main home with a gain of $400,000 and meets the federal ownership and use tests. The gain is below the $500,000 joint exclusion, so it is not in federal adjusted gross income and, on the documents read, $0 is taxed by Montana. As a second illustration, computed below, suppose the gain were $600,000. The amount above the exclusion would then be $100,000, which is taxed as a long-term capital gain at 3.0% or 4.1% depending on the rest of the return; this page computes no tax because the bracket depends on it.
What is collected at the sale
The documents read show no Montana withholding, prepayment or transfer tax on a home sale. The Realty Transfer Certificate filed with the county says “Any gain on this transfer is Montana source income” and should be reported on the appropriate income tax return, which is a reporting notice, not a withholding rule. That is a gap in what was read; ask the closing agent.
What changes in 2026
Montana: House Bill 337 lowers the top ordinary income rate from 5.9% to 5.65% for 2026; the rates on long-term capital gains remain at 3.0% and 4.1%.
What the documents do not say
- The pages read never name section 121, so conformity is reasoned from the federal starting point. The bracket where the capital gains rate changes depends on ordinary income and filing status and is not walked through here. No sale-time withholding or transfer tax was found. The instructions are for tax year 2025; the 2026 rates come from the Department’s pages.
Common mistakes
- Using the 5.9% ordinary income rate for a 2026 sale; the top ordinary rate falls to 5.65% and long-term capital gains stay at 3.0% and 4.1%.
- Reading the Realty Transfer Certificate notice as a withholding rule; it is a reminder to report the gain.
- Assuming the answer for one state applies to another, or that the state answer changes the federal tax on the sale.
Related: home sale taxes, state tax on home sale profit, how Montana taxes capital gains, Montana retirement taxes, and home sale exclusion calculator.
Find the right next step for your situation
About how much do you have invested? Pick the range that fits; your next step appears immediately below.
Compare vetted advisors for home sale proceeds
If your portfolio is $250,000 or more, this connects you (free, with no obligation to hire anyone) with 2 to 3 vetted advisors.
Before you start, what actually happens. The matching service is run by WiserAdvisor, an independent advisor-matching company. It opens on their site, asks for your ZIP code and a few questions, and matches you with 2 to 3 vetted advisors. It is free to you.
WiserAdvisor states the service is built for portfolios of $250,000 and above. By submitting, you consent to emails, phone calls and text messages from WiserAdvisor and up to three advisors, so expect to be contacted. Clear Money Guide may earn a referral payment for a qualifying completed form, whether or not you ever hire anyone.
Opens on WiserAdvisor’s site in a new tab.
See how an advisor plans your sale proceeds
Price the destination before you decide. The matching service below introduces you to advisers who pay to meet you.
Before you start, what actually happens. The form is run by Kapitalwise, our advisor-matching partner. Kapitalwise sends your details to advisers who pay for the introduction, so expect calls and texts. Clear Money Guide may earn a referral payment through this service, whether or not you ever hire anyone. This is free to you and there is no obligation to hire anyone.
The Kapitalwise form opens here; you stay on this page.
What happens when you press the button
It asks about nine questions: age, investable assets, location; then your name, email and phone number, and verifies the phone by text. Nothing loads and nothing reaches Kapitalwise until you press the button.
Prefer flat-fee or hourly pricing instead? Compare ranges here.
Answer againSources
- 2025 Montana Form 2 Individual Income Tax Instructions: https://revenue.mt.gov/files/forms/Montana-Individual-Income-Tax-Return-Form-2-Instructions/2025_Montana_Individual_Income_Tax_Return_Form_2_Instructions.pdf
- Realty Transfer Certificate Form RTC: https://revenuefiles.mt.gov/files/Forms/Realty_Transfer_Certificate_Form_RTC.pdf
- HB337: 2026-2027 Montana Individual Income Tax Changes: https://revenue.mt.gov/news/recent-news/HB-337
- Updated Montana Wage Withholding Tables and MW-4 Now Available: https://revenue.mt.gov/news/recent-news/2026-withholding-updates
- 2026 Montana Publication 1: A Guide to Montana Tax Withholding: https://revenuefiles.mt.gov/files/Forms/Publication-1/Publication-1-2026.pdf
- 26 U.S.C. 121, Exclusion of gain from sale of principal residence (U.S. Code, GovInfo): https://www.govinfo.gov/content/pkg/USCODE-2023-title26/html/USCODE-2023-title26-subtitleA-chap1-subchapB-partIII-sec121.htm
Sources: the primary documents linked above, read on October 8, 2026. General information, not tax advice. Your own facts decide the outcome, and a tax professional or the state agency itself is the right place to confirm anything consequential.