Federal Income Tax Deduction on Montana Tax Return

Several MSCPA members have contacted the Department of Revenue regarding the method limiting the deduction of federal income taxes paid as an itemized deduction on the Montana tax return to the amount of federal income taxes assessed on the 2018 federal Form 1040. We call this method the direct limitation method. The tax practitioners were concerned that they had already filed returns deducting federal income taxes paid without this limitation.

Our intention was to offer this direct limitation method as an alternative to the recovery method which requires a calculation spread over two tax years. Both the direct limitation method or the recovery method are correct.

  • The Form 2 booklet instructions will be updated later this week to clarify that tax practitioners can use either method. The department recommends reminding taxpayers that the recovery method may require a recovery amount the next year.
  • Tax software programs used by tax practitioners have been slow to use the direct limitation method, or in some instances have changed method of calculation during tax season. Montana tax returns already filed do not need to be amended. The recovery worksheet for tax year 2019 will account for both methods.

Please contact David Merrien, DOR Income Tax Specialist, at 444-7917 or with any questions.

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