Listed below is income that can be subtracted on your Montana return:
Subtraction for Federal Taxable Tier I Railroad Retirement Benefits
Subtract the taxable Tier I Railroad Retirement Benefits included on Form 2, Line 6b.
Interest On U.S. Obligations
You can subtract interest received from U.S. Government Obligations and mutual funds attributable to that interest from your federal AGI as long as it is included in your federal AGI on Form 2. Amounts listed in the Federal Section under Interest or Dividends > Amount of Interest in US Savings Bonds subtracted from state return are automatically pulled to this line.
Exempt Unemployment Compensation (Not available after 2023)
Unemployment benefits from Montana or another state are not taxable to Montana. Automatically pulled from Federal Section.
Exempt Workers Compensation Benefits (Not available after 2023)
If you received Workers Compensation benefits, they are not taxed by Montana under the worker’s compensation laws. You may enter the amount of taxable benefits here that you listed on your federal return.
Working military retirement and survivor benefit exemption
Montana resident working military retirees may be eligible to subtract some of their military retirement income. The subtraction is also available to resident beneficiaries receiving military survivor benefits.
Military Income:
- Exempt Military Salary of Residents on Active Duty: If you are a Montana resident and received military pay while an active duty serviceman and it is included in your federal AGI, you may subtract your basic, special and incentive pay from your Federal AGI. If you received combat pay that is not listed on your W-2, do not list that amount as it is not included in your Federal AGI.
- Exempt Income of Nonresident Military Servicepersons: If you are living in Montana solely to comply with your military orders, but a nonresident of Montana, your military income is not considered Montana source income and is not taxed by Montana.
Business-related expenses for purchasing recycled material
You can subtract 10 percent of the expenses your business incurred for purchasing recycled products from your federal taxable income. This subtraction is allowed only to businesses within Montana.
Business expenses not Federal Taxable Income due to federal credit
If you had a business expense which was disallowed because you claimed a federal tax credit, you can deduct this business expense for Montana tax purposes.
Certain expenses incurred by cannabis businesses
Cannabis business owners in Montana can subtract ordinary and necessary business expenses typically
disallowed under IRC 280E.
Exemption For Certain Income Of Child Taxed To Parent (Not available after 2023)
If your Federal Adjusted Gross Income included unearned income from your dependent child from form 8814, you may be able to exclude that unearned income on the Montana return
First Time Home Buyers Account (Not available after 2023)
You may be able to deduct up to $3,000 of contributions plus interest annually.
First-Time Homebuyer Account deposits and earnings from deposits made before January 1, 2024.
After January 1, 2024, individuals can no longer deposit amounts into these accounts. However, taxpayers may still take a subtraction from federal taxable income for deposits made before January 1, 2024, as well as any interest or earnings made on the principal of the account.
Farm Risk Management Account (Not available after 2023)
You can deduct deposits made to a Farm and Ranch Risk Management Account.
Passive Loss Carryover Exclusion
If you are a filing as Married Filing Separate Montana returns, but filed joint federal returns, you are now allowed the same combined passive loss amount as if you were filing jointly.
Exempt Montana Achieving A Better Life Experience Act (ABLE) Account Deposits
You can subtract contributions up to $3,000 made to one or more qualifying ABLE accounts during the tax year.
Local Income Tax Refunds included in AGI
If you are required to include your state income tax refund in your federal adjusted gross income on Form 2, line 10, you can exclude that amount on this line. Montana income tax refunds and income tax refunds received from another state are not taxable to Montana.
Gain on Eligible Sale of Mobile Home Park
If you are the owner of a mobile home park, and sold the park to a tenants association, Mobile home park residents association or a 501(c)(3), you may be able to subtract the gain you recognized.
Exempt Tribal Income
If you are an enrolled member of a tribe who lives and works on the reservation governed by your tribe, you may subtract all reservation source wages and income you earned from your federal adjusted gross income.
Pension Exemption (Not available after 2023)
If you have any taxable retirement income listed on your Montana return, you may be entitle to a partial exemption of this income. Early distributions of retirement income, regardless of payment for penalty, do not qualify for the exemption. Please see here for more information
Disability Exclusion (Not available after 2023)
You may be eligible for a partial retirement disability income exemption. For more information please see here.
Medical Savings Account Deduction
Report the subtraction calculated on MSA Schedule, Line 4 (subtractions).
Family Education Savings Account
You can subtract the lesser of $3,000 or the contributions made during the tax year
Program Entry
- State Section
- Edit Montana state return
- Subtractions from Income
Further Information
For a full list of the income subtractions you can claim on your Montana return, please click here.