Current through Register Vol. 6, March 22, 2024
(1) If a
taxpayer claims an itemized deduction for federal income taxes paid under
15-30-2131(1)(b),
MCA, in one tax period and subsequently receives a refund of those taxes paid
in another tax period, the amount of refund that is taxable under
15-30-210(1)(b),
MCA, is computed as though the taxpayer had paid the proper amount of federal
tax and claimed the appropriate deduction during the period. A taxpayer whose
deduction for federal income taxes was limited under
15-30-2131(1)(b),
MCA, for tax years beginning after December 31, 2004, would only report the
portion of their refund that reduces their tax paid below the applicable
limitation.
(2) The following
examples illustrate the application of this rule:
(a) Example 1 - Taxpayer A pays $15,000 in
federal income taxes in year one, has no other itemized deductions, files as
'single' on his Montana state income tax return, and receives a federal refund
in year two of $8,000. If the taxpayer had paid the proper tax during year one,
his federal taxes paid would have been $7,000. Since his Montana deduction for
federal taxes is limited to $5,000 in both situations, none of the refund would
be included in Montana taxable income.
(b) Example 2 - Married taxpayers B and C pay
$20,000 in federal income taxes in year one, have no other itemized deductions,
file as 'joint' on their Montana state income tax return, and receive a federal
refund in year two of $12,500. If the taxpayers had paid the proper tax during
year one, their federal taxes paid would have been $7,500. Since their Montana
deduction for federal income taxes was limited to $10,000, only $2,500 of their
federal refund would be included in Montana taxable income.
(c) Example 3 - Taxpayer D pays $6,500 in
federal income taxes in year one, has other itemized deductions totaling
$4,500, files as 'single' on her Montana state income tax return, and receives
a federal refund in year two of $4,100. If the taxpayer had paid the proper tax
during year one, her federal taxes paid would have been $2,400. Since her
Montana deduction for federal income taxes was limited to $5,000, only $2,600
of her federal refund would be included in Montana taxable income.
(3) The provisions under (1) and
(2) shall be effective for tax year 2006 forward.
(4) Unless clearly attributable to one
spouse, married taxpayers who filed a joint federal return but separate Montana
returns in the prior year and received a federal refund are required to prorate
the federal income tax refund between spouses by applying the ratio of the
federal income tax deduction claimed on the Montana return in the prior year.
(a) Example: Spouses A and B filed a joint
federal return but separate Montana returns for 2006. Spouse A claimed a
deduction for federal income taxes of $5,000 and spouse B claimed a deduction
of $3,000 for a total of $8,000. If the taxpayers received a federal refund in
the amount of $1,000, spouse A would use $625 ($5,000/8,000 * $1,000) and
spouse B would use $375 ($3,000/8,000 * $1,000) in calculating how much of
their federal refund is taxable in Montana under the tax benefit
rule.
15-30-2620, MCA; IMP,
15-30-2110,
15-30-2131,
MCA;
