Selling a Home in Montana: Tax Implications
Home sale taxation catches people off-guard, especially in a strong Montana market. Here's how the primary residence exclusion works and when tax hits.
The Section 121 exclusion
Up to $250,000 of gain excluded (single) or $500,000 (married filing jointly).
Ownership test: you owned the home for at least 2 of the last 5 years.
Use test: you used it as your principal residence for at least 2 of the last 5 years.
You can only use the exclusion once every 2 years.
Calculating gain
Sale price minus selling expenses (agent commission, closing costs, title fees) = amount realized.
Amount realized minus adjusted basis = gain.
Adjusted basis = original purchase price + purchase closing costs + capital improvements over the years.
Save records of every improvement — new roof, HVAC, kitchen remodel, deck, landscaping. They all increase basis.
When gain exceeds the exclusion
Long-held Montana homes in appreciating markets (Billings, Bozeman, Missoula) often exceed $500,000 in gain.
Excess gain over the exclusion is long-term capital gain (0/15/20% federal + Montana income tax up to 5.9%).
Consider basis-adding improvements before sale and 1031-like planning where applicable.
Partial exclusion for early sale
If you sell before meeting the 2-year test due to a qualifying reason (job change, health, unforeseen circumstances), you can claim a prorated exclusion.
Prorated based on time actually met vs 2 years.
Special cases
Converted rental (used as personal residence recently): exclusion may still apply to the personal-use portion; depreciation taken during rental period is always recaptured.
Home office: no longer requires basis allocation between office and residence for exclusion purposes (as long as office was in the same dwelling unit) — depreciation recapture still applies.
Losses on personal residence: NOT deductible (unlike investment property).
A quick disclaimer
This article is general information for Montana small business owners, not tax, legal, or accounting advice for your specific situation. Rules change, and how they apply depends on facts we don't know about you. Before acting on anything you read here, talk to a qualified professional. If you're a Montana business owner and want a real conversation about your books, payroll, or tax, that's what Marlow Accounting is here for — call 406-290-1214 or schedule a discovery call.