HB 868 revises Montana’s tax treatment of net long-term capital gains. The bill keeps the state’s general income tax brackets unchanged, but replaces the existing capital gains rate structure with a new set of lower, graduated rates for most taxpayers. Under the proposal, smaller amounts of net long-term capital gains would be taxed at 2%, with intermediate brackets taxed at 4% and 4.5%, and the highest bracket taxed at 5% once gains exceed specified thresholds. The bill also adjusts the bracket thresholds differently for married joint filers, heads of household, single filers, married filing separately, estates, and trusts.
The measure directs the Department of Revenue to annually inflation-adjust the bracket amounts by November 1 for the following tax year, rounding to the nearest $100. It defines “net long-term capital gains” by reference to the Internal Revenue Code and defines “nonqualified taxable income” as Montana taxable income that is not net long-term capital gains. The bill applies to income tax years beginning after December 31, 2025.
In practical terms, HB 868 would amend Section 15-30-2103, MCA, affecting taxpayers who realize long-term capital gains, especially higher-income filers and investors with substantial capital gains income. Because it changes only the capital gains tax schedule and not the ordinary income tax brackets, its fiscal effect would be concentrated on taxpayers with investment income rather than wage income. The bill would also require ongoing administrative adjustments by the Department of Revenue to keep the brackets indexed for inflation.
The bill appears to have been somewhat divisive but not overwhelmingly so. In committee, it received a narrow vote to table, then a stronger vote to take it from the table, followed by a do-pass recommendation in House Taxation. However, it later failed in House Appropriations on a 12-10 vote to table, and the bill ultimately died in the process. That pattern suggests support among some members for reducing capital gains taxes, but enough concern remained to prevent final advancement.
The main point of contention is the policy choice to lower taxes on capital gains, which likely raised concerns about revenue loss, fairness, and whether the benefit would disproportionately favor higher-income taxpayers and investors. Supporters likely viewed the bill as a tax reduction or investment incentive, while opponents likely focused on budget impacts and the distributional effects of preferential treatment for capital gains compared with ordinary income.
HB 868 would amend Montana Code Annotated section 15-30-2103 to create a new, lower tax schedule for net long-term capital gains while leaving the state’s ordinary income tax brackets intact. It would affect individual taxpayers, married couples, heads of household, estates, and trusts with capital gains income, and it would require the Department of Revenue to annually inflation-adjust the bracket thresholds. The bill would apply beginning with tax years after December 31, 2025.
The bill’s committee history suggests mixed sentiment with some support for capital gains tax relief and some resistance. It advanced out of House Taxation after procedural votes and a do-pass recommendation, but it later failed in House Appropriations, indicating that concerns about the bill’s fiscal and policy effects ultimately outweighed support. Overall, the sentiment appears cautious to unfavorable at the final stage, despite meaningful support earlier in the process.
The central contention was whether Montana should reduce taxes on net long-term capital gains and, if so, how much. Supporters likely favored the bill as a way to lower taxes on investment income and potentially encourage investment activity, while opponents likely objected to the revenue impact and the preferential treatment of capital gains relative to ordinary income. The narrow votes in committee and the final failure in Appropriations indicate that fiscal concerns and equity concerns were the main sources of opposition.