Montana Step-Up in Basis | Settled Estate

When you inherit property in Montana, its cost basis resets to the fair market value on the owner's date of death. That reset comes from Internal Revenue Code Section 1014, and it wipes out the capital gains tax on everything the asset gained while the owner held it. You pay tax only on growth after the death, and only when you sell.

The basis rule is federal. No Montana statute writes one. What Montana adds is a set of rules that decide how much of an asset resets and what you keep when you sell: a default that treats co-owners as tenants in common, a chapter that preserves community property brought in from another state, a 9-month inventory that puts the date-of-death number on paper, and a separate capital gains rate of 3.0% or 4.1% under the Montana Code Annotated 2025.

What The Step-Up Does, And Where The Rule Comes From

Basis is what the tax system treats as your cost in an asset. When you sell, you pay capital gains tax on the sale price minus that basis. The step-up changes the starting number.

The problem it solves

Say your mother bought a house in Bozeman in 1996 for $112,000. At her death in 2026 it is worth $640,000. If she had deeded it to you during her life, you would take her $112,000 cost, called a carryover basis, and a sale at $640,000 would show a $528,000 gain.

Because you inherited the house instead, your basis steps up to $640,000. Sell at $640,000 and your gain is zero. Sell two years later for $675,000 and you report a $35,000 gain rather than $563,000.

The rule is federal

Internal Revenue Code Section 1014(a) gives property acquired from a decedent a basis equal to "the fair market value of the property at the date of the decedent's death," with three alternatives: the Section 2032 alternate valuation figure, the Section 2032A special-use figure for farm and closely held business real property, and the decedent's own basis in land to the extent of a qualified conservation easement exclusion under Section 2031(c). The special-use figure matters more in Montana than in most states, because it was written for family ranches and farms.

The adjustment runs both directions. An asset worth less at death than the owner paid steps down to that lower figure, and the loss the owner could have taken disappears.

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Montana Charges No Estate Tax And No Inheritance Tax

Heirs mix the two taxes up all the time, so here is how they split.

Nothing is charged for receiving an inheritance. The Montana Department of Revenue says Montana no longer collects estate or inheritance taxes. The inheritance tax was repealed in November 2000 and does not apply to any death after January 1, 2001, and Montana does not have an estate tax for deaths after 2004.
No state release is needed. The same page says Montana no longer requires a certificate or consent from the department to close probate or to transfer stocks, bonds or other securities.
Montana income tax reaches the gain. That is the tax an heir actually meets, and it arrives when the asset is sold, not when it is received.

Only the federal estate tax can apply, and it reaches very few estates. Internal Revenue Code Section 2010(c)(3) sets the exclusion at $15,000,000, with inflation indexing starting for decedents dying in a calendar year after 2026. Estate tax and basis are separate questions, so read the federal estate tax page on its own: that one decides whether the estate owes a transfer tax, and this one decides what you pay when you sell. The Montana estate tax page checks one estate against the federal exemption.

Only Part Of A Jointly Owned Montana Home Steps Up

This is where Montana couples and families most often guess wrong.

Montana presumes tenancy in common, even for spouses

MCA 70-1-314, "Interest in common -- how created," says every interest created in favor of several persons in their own right, "including husband and wife," is an interest in common unless acquired in partnership for partnership purposes or declared in its creation to be a joint interest. MCA 70-1-307 defines that joint interest as one owned in equal shares by a title created by a single will or transfer, when the will or transfer expressly declares it to be a joint tenancy.

So a Montana deed to two spouses with no joint tenancy wording makes them tenants in common. The deceased spouse's share then passes under the will or by intestacy, and that share alone steps up. Pull the deed and read the vesting language before you assume anything.

When there is a joint tenancy

MCA 72-16-501 says the decedent's interest in property held in joint tenancy terminates upon death, so the survivor owns it without probate. MCA 72-16-503 then requires the survivor to record a document with the clerk and recorder of each county where the land sits, carrying what 7-4-2613(1)(c) requires.

How much steps up is a federal question, and the answer depends on who the joint owners are.

A married couple who are the only two joint tenants. Internal Revenue Code Section 2040(b) calls that a qualified joint interest and includes one-half of the value in the deceased spouse's gross estate no matter who paid. One-half steps up. The survivor's half keeps its original cost.
Anyone else holding as joint tenants. Section 2040(a) uses the consideration-furnished rule instead. The gross estate includes the whole value except the part shown to have originally belonged to the other owner. A child who paid nothing toward a Missoula house held jointly with a parent sees the full value included in the parent's estate, and the full value becomes the basis.

Montana is not a community property state

IRS Publication 551 names the community property states as Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. Montana is not on that list, so the full step-up on both halves that a community property state can give on the first death is not available on ordinary Montana title.

Community Property You Brought To Montana Keeps Its Character

Idaho and Washington sit next door and are both on that list. A couple who built up property there and then moved to Montana is a common fact pattern, and Montana has a short chapter written for it.

MCA 72-9-102 applies it to personal property, wherever situated, that was acquired as or became and remained community property under another jurisdiction's law, to property bought with its income or proceeds or traceable to it, and to Montana real property acquired with those proceeds. MCA 72-9-103 adds two rebuttable presumptions. Property acquired during the marriage while domiciled in a community property jurisdiction is presumed covered. Property acquired while domiciled somewhere without community property, and titled in a survivorship form, is presumed not covered.

MCA 72-9-107, "Disposition upon death," gives one-half of that property to the surviving spouse, free of the decedent's will and of the Uniform Probate Code. The other half passes by will or intestacy, and it is not subject to the survivor's right to elect against the will.

One warning follows. Under MCA 72-9-108, neither the personal representative nor the court has a duty to find out whether property is covered unless the surviving spouse makes a written demand. Nobody raises it for you.

Whether the surviving spouse's half also takes a federal step-up under Internal Revenue Code Section 1014(b)(6) turns on how the property was acquired and held, and that is a question for a CPA with the full acquisition history. The rest of what a spouse takes in Montana is covered in Montana surviving spouse rights.

Where The Date-Of-Death Value Gets Written Down In Montana

The step-up is worth exactly as much as your proof of the number.

The inventory carries it

MCA 72-3-607, "Inventory -- appraisal," gives the personal representative 9 months after appointment to prepare an inventory of probate property the decedent owned at death, listed in reasonable detail, showing for each item "its fair market value as of the date of the decedent's death and the type and amount of any encumbrance that may exist with reference to the item."

That sentence describes your basis document. It is dated to the death, it is itemized, and it records the debts that bear on what each asset was worth.

Ask for your copy

Section 72-3-607(3) gives the personal representative two choices. One is to send a copy to heirs, devisees and creditors with unpaid allowed claims who request it. The other is to file the original with the court and send copies to interested persons who ask. Under the first choice, the only copy may sit with the personal representative and the estate's lawyer, so ask for yours in writing while the estate is open and keep it with the deed.

Subsection (5) also lets the personal representative prepare a list of all the decedent's property, probate and nonprobate, with date-of-death values and the name of each nonprobate transferee. If you received a joint account or a house by transfer on death deed, ask whether that list exists. Our guide to an executor's job in Montana covers preparing both, and the Montana probate guide explains when a personal representative is appointed at all.

Appraisers

Section 72-3-607(2) lets the personal representative hire "a qualified and disinterested appraiser" for any asset whose value is subject to reasonable doubt, allows different appraisers for different kinds of assets, and requires each appraiser's name and address on the inventory beside the items appraised. A named appraiser on a dated document beats a family estimate every time.

What to gather, by asset

Real estate and ranch land. A written appraisal as of the date of death. A county assessor's value is not a date-of-death appraisal and is weak evidence.
Listed stocks and bonds. The IRS instructions for Form 706 set the rule: fair market value is the mean between the highest and lowest selling prices quoted on the valuation date. Ask the broker for a date-of-death valuation statement.
A business interest. A written valuation from a qualified appraiser.
Livestock, equipment and higher-value personal property. Appraisals for cattle, machinery, firearms, vehicles, art and collections. Photograph them where the decedent left them.

The alternate valuation date rarely applies

Internal Revenue Code Section 2032 lets the executor value the gross estate six months after death instead, but Section 2032(c) allows that only where it lowers both the gross estate and the estate and generation-skipping taxes. A federal estate tax return has to be in play, and most Montana estates sit far below the $15,000,000 exclusion and never file one. The date-of-death figure is the basis.

Add what you spend afterward

Capital improvements you make after you inherit raise your basis: a new roof, an addition, a well, a furnace, fencing on a working ranch. Ordinary repairs do not. Keep the invoices with the inventory copy.

What Steps Up And What Does Not

Section 1014(b) reaches property acquired by bequest, devise or inheritance, property in a revocable trust the decedent could change, and, under Section 1014(b)(9), property included in the decedent's gross estate by reason of death or form of ownership. Between them, these Montana routes all produce a date-of-death basis:

Property distributed out of Montana probate, whether or not there was a will. See Montana intestate succession for who inherits without one
Assets titled to a funded revocable living trust
Real estate passing by a recorded transfer on death deed, because MCA 72-6-411 leaves every interest and right with the transferor during life and creates no interest in the beneficiary
The decedent's share of a joint tenancy, measured by the Section 2040 rules above
Payable on death accounts and securities registered in beneficiary form
Personal property collected by affidavit, since that route changes the paperwork and not the tax. See Montana's small estate affidavit

Three categories do not step up:

Income in respect of a decedent. Traditional IRAs, 401(k) plans and other tax-deferred accounts carry no basis reset. Section 1014(c) says so directly, and the beneficiary pays ordinary income tax on withdrawals.
Lifetime gifts. Property handed over before death carries the donor's basis, which is why giving away appreciated land during life usually costs the family more.
Property you gave the decedent within a year of death. Section 1014(e) sends appreciated property back to the donor, or the donor's spouse, at the decedent's adjusted basis when the gift was made inside the one-year window ending at death.

None of the nonprobate routes cost the step-up, so avoiding probate in Montana is a question about time and paperwork rather than basis. The trade-offs are set out in how to avoid probate in Montana.

What Montana Charges When You Sell

Montana has its own capital gains rates

Montana taxes long-term capital gains at lower rates than ordinary income. MCA 15-30-2103, "Rate of tax -- net long-term capital gains -- definitions," taxes net long-term capital gains at 3.0% up to a bracket line and 4.1% above it. The line is reduced by your other Montana taxable income, so a large salary pushes more of the gain into 4.1%.

Here is the version of the statute that governs tax year 2026, amended by Chapter 227, Laws of 2025:

Filer	3.0% on long-term gain up to	4.1% above	Ordinary income rates
Single filer, estate or trust	$47,500, less other taxable income	that line	4.7% to $47,500, then 5.65%
Head of household	$71,250, less other taxable income	that line	4.7% to $71,250, then 5.65%
Married filing jointly or surviving spouse	$95,000, less other taxable income	that line	4.7% to $95,000, then 5.65%
Married filing separately	$47,500, less other taxable income	that line	4.7% to $47,500, then 5.65%

That version terminates December 31, 2026. The version printed as effective January 1, 2027 keeps the 3.0% and 4.1% rates, raises the lines to $65,000 for single filers, estates and trusts, $97,500 for a head of household and $130,000 on a joint return, cuts the top ordinary rate to 5.4%, and directs the Department of Revenue to adjust the brackets for inflation each year. Use the version for the year of the sale, not the year of the death.

Inherited property is always long-term

The statute borrows its definition of net long-term capital gains from Internal Revenue Code Section 1222. Section 1223(9) treats property acquired from a decedent as held for more than one year when it is sold within a year of the death. So even a sale one month after the funeral lands in Montana's lower capital gains brackets and the lower federal long-term rates.

If the estate sells before distributing

MCA 15-30-2151 taxes the fiduciaries or beneficiaries of estates and trusts "in the same manner and to the same extent" as the federal income tax does, and makes the fiduciary responsible for the return. The Department of Revenue says that beginning with tax year 2024, a resident estate must file Form FID-3 if it has a federal filing requirement or positive Montana taxable income, and that an estate is a resident estate if the decedent was a Montana resident on the date of death. The fiduciary gives each beneficiary a Montana Schedule K-1 (FID-3), and beneficiaries report that income on their own Montana returns. A calendar-year return is due April 15, with an automatic six-month extension to file but not to pay.

Notice that an estate uses the single filer's line under 15-30-2103. Distributing the property first and letting a married heir sell can move more of the gain into the 3.0% bracket.

The federal side of the same gain

The net investment income tax. Section 1411 adds 3.8% on the lesser of net investment income or the excess of modified adjusted gross income over $250,000 on a joint return or for a surviving spouse, half that for a married person filing separately, and $200,000 in any other case. Those figures carry no inflation indexing. An estate or trust reaches the tax much sooner, which is one more reason to consider distributing before selling.
A surviving spouse selling the family home. Section 121(b)(4) lets an unmarried surviving spouse use the $500,000 exclusion rather than $250,000 where the sale happens no later than two years after the spouse's death and the ownership and use tests were met immediately before the death. Stacked on a half step-up, that often erases the gain. The two-year clock is the part people miss.

Basis is the number, and the sale is the transaction. For who signs, what the title company wants and how the deed gets recorded, see selling inherited property in Montana.

Records To Keep

Hold these together in one place, and keep them for as long as you own the asset plus the years a return can be examined:

Your copy of the 72-3-607 inventory, and the nonprobate list if one was prepared
Date-of-death appraisals for real estate, and the broker's date-of-death valuation statement for securities
The deed, because its vesting language decides whether you held as joint tenants or tenants in common
The recorded 72-16-503 document if you took title as a surviving joint tenant
Closing papers from the original purchase where property was jointly held, since Section 2040(a) turns on who paid
Invoices for every capital improvement made after you inherited
The settlement statement, commissions and legal and accounting fees from the eventual sale

Frequently Asked Questions

Does Montana tax me when I inherit property?

No. The Montana Department of Revenue says Montana no longer collects estate or inheritance taxes. Its inheritance tax was repealed in November 2000 and does not apply to any death after January 1, 2001, and Montana has no estate tax for deaths after 2004. What can reach you is income tax on the gain if you later sell the inherited asset for more than its stepped-up basis.

What rate does Montana charge on the gain when I sell inherited property?

Montana taxes net long-term capital gains at 3.0% or 4.1% under MCA 15-30-2103(2). For tax year 2026 the 3.0% rate covers long-term gains up to $47,500 for a single filer, an estate or a trust, $71,250 for a head of household and $95,000 on a joint return or for a surviving spouse, each reduced by your other Montana taxable income. Gain above that line is taxed at 4.1%. Inherited property counts as long-term no matter how soon you sell, so the lower capital gains rates apply.

Where does the date-of-death value get written down in a Montana estate?

In the inventory. MCA 72-3-607 gives the personal representative 9 months after appointment to prepare an inventory of probate property showing each item's fair market value as of the date of death and any encumbrance on it. The personal representative either sends a copy to heirs, devisees and unpaid allowed creditors who request it, or files the original with the court. So ask for your copy in writing while the estate is open.

My spouse and I own our Billings home together. Does the whole house step up when one of us dies?

No. Montana is not a community property state, and IRS Publication 551 does not list it among the nine that are. Where a married couple holds a home as the only two joint tenants, Internal Revenue Code Section 2040(b) puts one-half of the value in the deceased spouse's gross estate no matter who paid for it, so one-half steps up to date-of-death value and the survivor's half keeps its original cost. Check the deed too: MCA 70-1-314 treats an interest held by several persons, including husband and wife, as an interest in common unless the deed declares a joint interest.

Do inherited retirement accounts get a step-up?

No. A traditional IRA, a 401(k) and similar tax-deferred accounts are income in respect of a decedent. Internal Revenue Code Section 1014(c) says the basis rule does not apply to them, and the beneficiary pays ordinary income tax on withdrawals. The step-up reaches capital assets such as real estate, a taxable brokerage account and a business interest.

Does the step-up still apply if the house passed by a Montana transfer on death deed?

Yes. MCA 72-6-411 says that during the transferor's life a transfer on death deed does not affect the transferor's interest or rights, including the right to transfer or encumber the property, and creates no legal or equitable interest in the beneficiary. The owner keeps everything until death, so the property is included in the gross estate and takes a date-of-death basis under Internal Revenue Code Section 1014(b)(9). Skipping probate costs nobody the step-up.

Sources:

Title: MCA 72-3-607, Inventory -- appraisal. Publisher: Montana State Legislature, Montana Code Annotated 2025. Publication Date: Amended by Sec. 2, Ch. 564, L. 2023, accessed 2026-09-27. URL: https://mca.legmt.gov/bills/mca/title_0720/chapter_0030/part_0060/section_0070/0720-0030-0060-0070.html
Title: MCA 70-1-307, Joint interest defined. Publisher: Montana State Legislature, Montana Code Annotated 2025. Publication Date: Not listed, accessed 2026-09-27. URL: https://mca.legmt.gov/bills/mca/title_0700/chapter_0010/part_0030/section_0070/0700-0010-0030-0070.html
Title: MCA 70-1-314, Interest in common -- how created. Publisher: Montana State Legislature, Montana Code Annotated 2025. Publication Date: Not listed, accessed 2026-09-27. URL: https://mca.legmt.gov/bills/mca/title_0700/chapter_0010/part_0030/section_0140/0700-0010-0030-0140.html
Title: MCA 72-16-501, Interest of decedent terminated upon death. Publisher: Montana State Legislature, Montana Code Annotated 2025. Publication Date: Amended by Sec. 2472, Ch. 56, L. 2009, accessed 2026-09-27. URL: https://mca.legmt.gov/bills/mca/title_0720/chapter_0160/part_0050/section_0010/0720-0160-0050-0010.html
Title: MCA 72-16-503, Filings required when holder of nonprobate interest in real property has died. Publisher: Montana State Legislature, Montana Code Annotated 2025. Publication Date: Amended by Sec. 2, Ch. 412, L. 2001, accessed 2026-09-27. URL: https://mca.legmt.gov/bills/mca/title_0720/chapter_0160/part_0050/section_0030/0720-0160-0050-0030.html
Title: MCA 72-9-102, Application. Publisher: Montana State Legislature, Montana Code Annotated 2025. Publication Date: Enacted by Sec. 2, Ch. 395, L. 1989, accessed 2026-09-27. URL: https://mca.legmt.gov/bills/mca/title_0720/chapter_0090/part_0010/section_0020/0720-0090-0010-0020.html
Title: MCA 72-9-103, Rebuttable presumptions. Publisher: Montana State Legislature, Montana Code Annotated 2025. Publication Date: Enacted by Sec. 3, Ch. 395, L. 1989, accessed 2026-09-27. URL: https://mca.legmt.gov/bills/mca/title_0720/chapter_0090/part_0010/section_0030/0720-0090-0010-0030.html
Title: MCA 72-9-107, Disposition upon death. Publisher: Montana State Legislature, Montana Code Annotated 2025. Publication Date: Enacted by Sec. 4, Ch. 395, L. 1989, accessed 2026-09-27. URL: https://mca.legmt.gov/bills/mca/title_0720/chapter_0090/part_0010/section_0070/0720-0090-0010-0070.html
Title: MCA 72-9-108, Perfection of title of surviving spouse. Publisher: Montana State Legislature, Montana Code Annotated 2025. Publication Date: Enacted by Sec. 5, Ch. 395, L. 1989, accessed 2026-09-27. URL: https://mca.legmt.gov/bills/mca/title_0720/chapter_0090/part_0010/section_0080/0720-0090-0010-0080.html
Title: MCA 72-6-411, Effect of transfer on death deed during transferor's life. Publisher: Montana State Legislature, Montana Code Annotated 2025. Publication Date: Enacted by Sec. 94, Ch. 313, L. 2019, accessed 2026-09-27. URL: https://mca.legmt.gov/bills/mca/title_0720/chapter_0060/part_0040/section_0110/0720-0060-0040-0110.html
Title: MCA 15-30-2103, Rate of tax -- net long-term capital gains -- definitions. Publisher: Montana State Legislature, Montana Code Annotated 2025. Publication Date: Amended by Secs. 1 and 2, Ch. 227, L. 2025, accessed 2026-09-27. URL: https://mca.legmt.gov/bills/mca/title_0150/chapter_0300/part_0210/section_0030/0150-0300-0210-0030.html
Title: MCA 15-30-2151, Tax on beneficiaries or fiduciaries of estates or trusts. Publisher: Montana State Legislature, Montana Code Annotated 2025. Publication Date: Amended by Sec. 12, Ch. 503, L. 2021, accessed 2026-09-27. URL: https://mca.legmt.gov/bills/mca/title_0150/chapter_0300/part_0210/section_0510/0150-0300-0210-0510.html
Title: Montana Estate and Inheritance Tax. Publisher: Montana Department of Revenue. Publication Date: Not listed, accessed 2026-09-27. URL: https://revenue.mt.gov/taxes/fiduciaries/estate-and-inheritance-tax
Title: Montana Estate and Trust Income Tax Filing Requirements. Publisher: Montana Department of Revenue. Publication Date: Not listed, accessed 2026-09-27. URL: https://revenue.mt.gov/taxes/fiduciaries/estate-and-trust-filing-requirements
Title: 26 U.S.C. 1014, Basis of property acquired from a decedent. Publisher: Office of the Law Revision Counsel, United States House of Representatives. Publication Date: Not listed, accessed 2026-09-27. URL: https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section1014&num=0&edition=prelim
Title: 26 U.S.C. 1223, Holding period of property. Publisher: Office of the Law Revision Counsel, United States House of Representatives. Publication Date: Not listed, accessed 2026-09-27. URL: https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section1223&num=0&edition=prelim
Title: 26 U.S.C. 2032, Alternate valuation. Publisher: Office of the Law Revision Counsel, United States House of Representatives. Publication Date: Not listed, accessed 2026-09-27. URL: https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section2032&num=0&edition=prelim
Title: 26 U.S.C. 2040, Joint interests. Publisher: Office of the Law Revision Counsel, United States House of Representatives. Publication Date: Not listed, accessed 2026-09-27. URL: https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section2040&num=0&edition=prelim
Title: 26 U.S.C. 2010, Unified credit against estate tax. Publisher: Office of the Law Revision Counsel, United States House of Representatives. Publication Date: Not listed, accessed 2026-09-27. URL: https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section2010&num=0&edition=prelim
Title: 26 U.S.C. 1411, Imposition of tax. Publisher: Office of the Law Revision Counsel, United States House of Representatives. Publication Date: Not listed, accessed 2026-09-27. URL: https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section1411&num=0&edition=prelim
Title: 26 U.S.C. 121, Exclusion of gain from sale of principal residence. Publisher: Office of the Law Revision Counsel, United States House of Representatives. Publication Date: Not listed, accessed 2026-09-27. URL: https://uscode.house.gov/view.xhtml?req=granuleid:USC-prelim-title26-section121&num=0&edition=prelim
Title: Publication 551, Basis of Assets. Publisher: Internal Revenue Service. Publication Date: December 2025, accessed 2026-09-27. URL: https://www.irs.gov/publications/p551
Title: Instructions for Form 706. Publisher: Internal Revenue Service. Publication Date: September 2025, accessed 2026-09-27. URL: https://www.irs.gov/instructions/i706

This guide explains how the step-up in basis works for Montana inherited property. Tax outcomes turn on facts that vary by family, so take yours to a CPA or tax attorney. It is not legal advice.