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Tool | September 2014

State-by-State Guide to Taxes on Retirees

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Montana

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The Bottom Line
Map of Montana

NOT TAX-FRIENDLY

One of Kiplinger's top ten least tax-friendly states for retirees, the Treasure State is one of five states that do not impose a general state sales tax. That's the good news. The bad news is that it taxes most forms of retirement income, except Railroad Retirement benefits. The state allows a pension- and annuity-income exemption of up to $3,900 per person, subject to certain income limitations. Residents 65 and older can exclude up to $1,600 of interest income from state taxes.

State Sales Tax

There is no general state sales tax, but you will pay 7% in taxes on accommodations and campgrounds and pay a 4% tax on rental vehicles. Montana allows tourism-dependent local communities to impose a local option sales tax. State law limits the rate to no more than 3%, but the rate and taxable items are both set by local ordinance. Eight communities have adopted local sales taxes.

Income Tax Range

Low: 1% (on up to $2,800 of taxable income)

High: 6.9% (on taxable income over $16,700)

Social Security

Social Security benefits are taxable. The taxable amount may be different from the federally taxable amount because Montana taxes some types of income that the federal government does not, and vice versa.

Exemptions for Other Retirement Income

The state allows a partial pension exemption adjusted for inflation every year. For 2013, the maximum exemption was $3,900 if federal adjusted income is $32,480 or less. If both spouses are receiving retirement income, each spouse can take up to the maximum exemption if the couple falls under the income threshold. Early distributions from an IRA do not qualify for this exemption. Residents 65 and older can exclude up to $1,600 of interest income from state taxes. Tier II Railroad Retirement benefits are 100% exempt from Montana income tax.

Property Taxes

The tax rate in 2014 is 2.47%. Residential property owners qualify for a homestead exemption of 47% of market value, so the tax bill is based on 53% of a property's market value. The state establishes the assessment rate to determine the taxable value, while local taxing units establish the tax rates to determine the property tax amount.

There is a property tax assistance program -- if you are single and your total household income is greater than $21,144, you do not qualify. Households with more than one owner occupant and a total household income greater than $28,192 cannot qualify.

Median property tax on the state's median home value of $176,300 is $1,465, according to the Tax Foundation.

Tax breaks for seniors: Any homeowner or renter 62 or older can apply for a refundable income tax credit worth up to $1,000 if they have lived in Montana for nine months, occupied a residence for six months and have a gross household income of less than $45,000.

Inheritance and
Estate Taxes

There is no inheritance tax or estate tax.

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