Do I Have to Pay Capital Gains Tax If I Sell My Home in Montana?
Since property values in Montana have skyrocketed in recent years, many clients are concerned that they will owe substantial capital gains tax if they sell their residence to move or downsize.
For many Montana homeowners, the answer is no, you don’t have to pay capital gains tax when selling your home, thanks to the federal home-sale exclusion under Internal Revenue Code §121.
How the Home Sale Exclusion Works
Under 121, an individual can exclude up to $250,000 of gain when they sell their primary residence. Married couples filing jointly can exclude up to $500,000. That means if a married couple bought their home for $100,000 and later sold it for $600,000, they would not owe a dime of capital gains tax.
To qualify, you generally must have:
- Owned the home for at least two years, and
- Lived in it as your primary residence for at least two years within the five years before the sale.
If One Spouse Has Passed Away
The surviving spouse may still use the full $500,000 exclusion, but only if:
- The home is sold within two years of the spouse’s death, and
- The couple would have qualified for the $500,000 exclusion before the death.
When Taxes Might Still Apply
You may owe capital gains tax if:
- Your gain exceeds the exclusion amount
- You didn’t meet the two-year ownership or residency requirement
- You used part of the home for business or rental purposes
- You already used the exclusion within the last two years
Montana generally follows federal tax rules, so if you are excluded from federal capital gains tax, you would also be excluded from Montana capital gains tax.
As always, make sure to consult with a Certified Public Accountant on your specific tax landscape before making major financial decisions.
