1031 Exchange & DST Investing in Montana
Montana conforms to Section 1031 and taxes long-term capital gains at a preferential top rate of 4.1%, but it is a clawback state that tracks deferred gain exchanged into out-of-state property. Bozeman and Billings anchor a small but fast-appreciating market fueled by in-migration.
State tax treatment of a 1031 exchange
Montana conforms to Section 1031, so a properly structured exchange defers Montana income tax on the gain. Montana taxes net long-term capital gains under a separate schedule, with a top rate of 4.1% for 2025 (below the top ordinary income rate). There is no state nonresident real estate withholding.
Montana is generally treated as a clawback state: when Montana property is exchanged for replacement property outside the state, Montana continues to track the deferred Montana-source gain and expects it to be reported when eventually recognized. Unlike California and Oregon, Montana does not impose a specific annual exchange information form, but the deferred gain remains subject to Montana tax on recognition.
Market snapshot
Billings is Montana's largest market, with Bozeman, Missoula, and Kalispell forming fast-growing secondary metros. Multifamily, neighborhood retail, and net-lease and hospitality assets lead investor demand, alongside ranch and recreational land that trades outside institutional channels.
Bozeman in particular has drawn outsized in-migration and second-home and lifestyle capital, pushing values well above historical norms. The overall market is small, so institutional-grade replacement inventory remains limited relative to larger Mountain West metros.
Why 1031 & DST investors look here
- Preferential 4.1% long-term capital-gains rate
- Strong in-migration and appreciation in Bozeman and the Flathead Valley
- Limited local inventory encourages diversification into out-of-state replacements
Replacement-property options
Replacement property does not need to be in Montana — like-kind real estate is nationwide. Montana owners use DSTs, 721 UPREIT structures, and Opportunity Zone investments to exchange into passive, professionally managed assets in larger markets; where the replacement is out of state, the deferred Montana-source gain remains trackable under the state's clawback approach and taxable when recognized.
Frequently asked questions
Does Montana tax a 1031 exchange?
Montana conforms to Section 1031, so a valid exchange defers Montana tax; long-term gains are taxed at a top rate of 4.1% when eventually recognized.
Can I exchange Montana property for out-of-state DSTs?
Yes. Like-kind property can be anywhere in the U.S., but Montana is a clawback state, so the deferred Montana-source gain remains subject to Montana tax when it is later recognized.
Does Montana have a special exchange filing like California?
Montana does not impose a dedicated annual exchange form like California's FTB 3840, but as a clawback state it still tracks deferred Montana gain until recognition.
Gerald F. “Jerry” Baker, III — Founder & Managing Principal, Baker 1031 Investments · FINRA Series 22 / 63 · SIE. Read full bio →
State tax treatment is general and changes frequently; this page is educational and is not tax, legal, or investment advice. Confirm current state and local rules with your own CPA and attorney. Securities offered through Aurora Securities, member FINRA/SIPC. Real estate investments involve risk, including possible loss of principal.