Does Montana Have an Inheritance Tax?

Montana does not have an inheritance tax, so beneficiaries will not owe state tax on assets they inherit. This applies regardless of the inheritance’s size or the heir’s relationship to the deceased. Montana also does not impose a state-level estate tax, which means the estate itself is not subject to state tax before assets are distributed.

The Repeal of Montana’s Inheritance Tax

Montana previously had both an inheritance tax and a separate estate tax, but these have been eliminated. The state’s inheritance tax was formally repealed for deaths occurring on or after January 1, 2001. Following this, Montana also abolished its state estate tax, effective for the estates of individuals who died on or after January 1, 2005. These legislative changes simplified the inheritance process for residents.

Federal Estate Tax Applicability

While Montana does not have a death-related tax, the federal government imposes an estate tax. This tax is calculated on the total value of a person’s assets at the time of death. The responsibility for paying this tax falls on the estate itself, not the individual beneficiaries who receive inheritances.

The federal exemption is the amount an individual can leave to heirs without incurring any federal estate tax. For 2024, this amount is $13.61 million per person and is scheduled to increase to $13.99 million in 2025. Because of this substantial threshold, most estates fall below the filing requirement and owe no federal estate tax. Only estates with a total value exceeding these figures are subject to the tax.

Capital Gains Tax on Inherited Property

Although there is no tax on the act of inheriting property in Montana, a capital gains tax may apply when an heir decides to sell the inherited asset. Its calculation is directly affected by a provision known as the “stepped-up basis.” This rule, found in Internal Revenue Code Section 1014, is a benefit for beneficiaries of inherited property like real estate or stocks.

The stepped-up basis adjusts the asset’s cost basis to its fair market value at the date of the original owner’s death. For tax purposes, it is as if the heir purchased the asset for its value on that day. This mechanism can reduce or even eliminate the taxable capital gain when the asset is eventually sold.

For example, if a person inherits a house that was purchased for $50,000 but is worth $300,000 on the date of the owner’s death, the heir’s cost basis becomes $300,000. If that heir then sells the house for $310,000, they would only owe capital gains tax on the $10,000 of appreciation. Without the stepped-up basis, the taxable gain would have been $260,000, representing the difference from the original purchase price.