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Rule Title: CAPITAL GAIN CREDIT
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Department: REVENUE
Chapter: TAX CREDITS
Subchapter: Individual - Capital Gain Credit
 
Latest version of the adopted rule presented in Administrative Rules of Montana (ARM):

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42.4.502    CAPITAL GAIN CREDIT

(1) For the applicable tax years shown below, an individual may claim a credit against their Montana individual income tax of up to 1% of their net capital gain. For tax years beginning after December 31, 2006, an individual may claim a credit against their Montana individual income tax of up to 2% of their net capital gain. The credit is based on the net capital gain as shown on the individual's Montana individual income tax return. Spouses who file a joint return for federal income tax purposes but a separate return for Montana income tax and who elect to claim the same amount of capital loss deduction as shown on their joint federal income tax return as provided in 15-30-2110, MCA, for tax years beginning after December 31, 2006, must compute the capital gain credit consistently. The credit is nonrefundable and may not be carried back or carried forward to any other tax year. The credit must be applied before any other credit.

(2) A nonresident or a part-year resident must apply the credit to Montana tax computed as if he or she were a resident during the entire tax year.

(3) For an estate or trust filing a form FID-3, Montana fiduciary return, the credit is calculated on the net capital gains reported minus any net capital gains distributed to any beneficiary.

(4) Married taxpayers filing separately must compute and report their capital gains and losses as provided in ARM 42.15.206. For tax years beginning after December 31, 2006, spouses who have filed a joint federal return and are filing a separate Montana return, may not, except as provided in (5), calculate the credit based on their separate gains and losses, but must net gains and losses and calculate the credit on the net capital gain shown on their joint federal return, allocating the resulting credit between them.

(5) For tax years beginning after December 31, 2008, spouses may elect to report all of their capital gains and losses separately for the current and future tax years. An election is made by claiming a capital gains credit calculated on a net capital gain amount that is different from the net capital gain shown on the taxpayer's joint federal income tax return, or claiming a capital loss deduction that is greater than the amount that would be allowed for federal income tax purposes if the taxpayer had filed a separate federal income tax return.

(6) The following are examples of how the credit is applied:

(a) Example: For tax year 2005, John and Barbara file a joint 2005 federal income tax return reporting $5,000 of net capital gain. John's income consists of $50,000 in wages and $8,000 of net capital gain. Barbara's income consists of $35,000 in wages and $3,000 of net capital loss. If they file separately rather than jointly for Montana, they must separately compute and report their capital gains and losses as provided in ARM 42.15.206. John may claim a capital gain credit of up to $80 against his Montana income tax. Barbara is not entitled to claim any credit against her tax.

Montana Return
 
Federal Return
Column A
Column B

Wages

$85,000
$50,000
$35,000
Sch. D capital gain (loss)
$ 5,000
$ 8,000
($ 3,000)
Fed. adjusted gross income

 

$90,000
$58,000
$32,000
Montana adjustment for
capital loss limit

 

$ 1,500
Montana adjusted gross income
$91,500
$58,000
$33,500
Capital loss carryover
($ 1,500)

 

(b) Example: For tax year 2006, John, a single Montana resident with $1,300 of net capital gain, is entitled to an elderly homeowner credit of $500. His Montana tax, before credits, is $400. He may claim the $13 capital gain credit before determining the amount of his refundable elderly homeowner tax credit.

Montana tax before credits $ 400
Capital gain credit ($ 13)
Montana tax after capital gain credit $ 387
Elderly homeowner credit ($ 500)
Refund $ 113 

 

 

(c) Example: For tax year 2006, Mary has wages of $80,000 and has $50,000 of net capital gain, $30,000 of which was realized from an investment in a small business investment corporation that is exempt from Montana income tax as provided in 15-33-106, MCA. Mary is entitled to a capital gain credit of $200, 1% of the $20,000 net capital gain included in her Montana adjusted gross income.

(d) Example: For tax year 2006, Patrick, a nonresident, has wages of $50,000, net capital gain of $8,000, and a distributive share of $10,000 of ordinary income from an S corporation. In this example, the $10,000 ordinary income from the S corporation is Montana source income. The wages and capital gain are not Montana source income. Assume that his Montana tax, computed as if he were a resident, on his taxable income after Montana exemptions, exclusions, and deductions, is $3,000. The capital gain credit of $80 is applied against the tax determined as if he were a resident.

Montana tax determined as if resident

 

$3,000
Capital gain credit ($ 80)
Tax to which nonresident ratio applied $2,920
Ratio of Montana source income to income
from all sources ($10,000/$68,000)

 

.147
Montana tax ($2,920 x .147) $ 429

 

 

(e) Example: For tax year 2007, John and Barbara file a joint 2007 federal income tax return reporting $5,000 of net capital gain. John's income consists of $50,000 in wages and $8,000 of net capital gain. Barbara's income consists of $35,000 in wages and $3,000 of net capital loss. If they file separately rather than jointly for Montana, they must separately compute and report their capital gains and losses as provided in ARM 42.15.206. John may claim a capital gain credit of up to $160 ($8,000 x 2%) against his Montana income tax. Barbara is not entitled to claim any credit against her tax.

  Federal Return
Montana Return
    Column A Column B
Wages $85,000 $50,000 $35,000
Sch. D capital gain (loss) $ 5,000 $ 8,000 $(3,000)
Fed. adjusted gross income $90,000 $58,000 $32,000
Montana adjusted gross income $90,000 $58,000 $32,000

(f) Example: For tax year 2009, John and Barbara file a joint 2009 federal income tax return reporting $2,000 of net capital gain. John's income consists of $50,000 in wages and $8,000 of net capital gain. Barbara's income consists of $35,000 in wages and $6,000 of net capital loss. If they file separately rather than jointly for Montana, unless they elect to separately report their capital gains and losses for this and future years as provided in (5), their capital gain credit is 2% of their net capital gain of $2,000, or $40.

(g) Example: Assume the same facts as the example in (f) except that the spouses do elect to separately report their capital gains and losses as provided in subsection (5). John may claim a capital gain credit of up to $160 ($8,000 x 2%) against his Montana income tax. Barbara is not entitled to claim any credit against her tax. 

  Federal Return
Montana Return
    Column A Column B
Wages $85,000 $50,000 $35,000
Sch. D capital gain (loss) $ 2,000 $ 8,000 $(6,000)
Fed. adjusted gross income $87,000 $58,000 $32,000

Montana adjustment for capital loss limit

$ 4,500

 

Montana adjusted gross income $94,500 $58,000 $36,500
Montana capital loss carryover ($ 4,500)

 

History: 15-30-2618, MCA; IMP, 15-30-2104, 15-30-2106, 15-30-2301, MCA; NEW, 2004 MAR p. 2600, Eff. 10/22/04; AMD, 2008 MAR p. 57, Eff. 1/18/08; AMD, 2010 MAR p. 1211, Eff. 5/14/10.


 

 
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