2025 Legislative Roundup - Major Updates to Montana’s Tax System

The 2021 Montana Legislature passed Senate Bill 399. The bill required the calculation of Montana individual income tax to now be based on federal taxable income. This change was effective as of the 2024 tax year. The bill did provide “transition adjustments” for the differences between Montana and federal passive and capital losses but the bill specifically excluded net operating losses from the provision.

The 2025 Montana Legislature passed Senate Bill 544 (SB544), which provided for a transition adjustment for net operating loss carryovers. Under SB544, if an individual’s Montana net operating loss carryforward at the end of 2023 differed from the federal net operating loss carryforward, a transition adjustment was allowed on the 2024 Form 2. The term “Montana Net Operating Loss” refers to a net operating loss computed under Internal Revenue Code Section 172 and accounts for the modifications to income provided under Montana law.

Differences in NOLs can arise from the following situations:

• Additions and subtractions under Montana law affecting the loss amount
• Additions and subtractions under Montana law affecting the income offset by the NOL
• Election to forego the carryback for Montana while carrying back the NOL federally and vice versa

A negative difference (Montana NOL is larger than federal NOL) reduces Montana taxable income. If Montana taxable income is reduced to zero, any remaining amount can be carried forward up to seven (7) years.

The election to report a transition adjustment for net operating loss differences must be made on the 2024 tax year Form 2, transition adjustment lines, and filed by October 15, 2025. The election must be made by this date in order to carryforward any excess amounts even if Montana taxable income is zero for 2024. If the return has already been filed, an amendment reporting the adjustment must be filed by the October date.

The Department of Revenue has revised the 2023 Form NOL (Montana Net Operating Loss) to provide a calculation of the difference to be made on the 2024 Form 2. No extensions to make the election for tax year 2024 are allowed under the SB544 law.

Please refer to the revised 2023 Montana Net Operating Loss for Individuals, Estates, and Trusts (Form NOL) and updated instructions on our website for more information about calculating and reporting the adjustment. The form is available in the Individual Income Tax section of the Forms page.

For questions, contact our Call Center at (406) 444-6900 or Brian Olsen, Income Tax Specialist, at bolsen@mt.gov or (406) 444-1932.