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Montana’s 2024 Fiduciary Income Tax Changes: Key Updates for Tax Professionals

March 19, 2025

Montana’s 2024 tax season introduces significant updates to the fiduciary income tax return (Form FID-3) as part of the state’s tax simplification initiative. While the goal is to align Montana more closely with federal standards and reduce compliance burdens, these changes also present challenges—especially given that many tax software providers have yet to fully implement the new requirements correctly.

As a tax professional, it is critical to closely review fiduciary returns this year to ensure accuracy. Below is a breakdown of the key changes and their implications.

Key Changes to Form FID-3

1. No Deduction for Federal Taxes Paid

Montana fiduciaries can no longer deduct federal income taxes paid. This change aligns with the treatment of federal tax deductions for individual taxpayers in Montana and may result in a higher taxable income for trusts and estates at the state level.

Additionally, fiduciaries must now determine whether a federal refund from a prior year is taxable in Montana. This requires careful analysis, as prior-year deductions related to the refund could impact its taxability. Tax professionals should pay close attention to this issue, as it has not been handled correctly by the tax software.

2. Direct Alignment with Federal Taxable Income

Montana now starts fiduciary returns with federal adjusted total income, reducing state-specific modifications. While this simplifies calculations in theory, it also requires an accurate understanding of how federal-to-state adjustments impact the final Montana tax liability. In addition, the exemption allowed for Montana now mirrors the Federal exemption, which is considerably less than the exemption allowed in previous years.

3. Importance of Schedule I and Worksheet I

The new Schedule I and Worksheet I are critical in determining:

  • Montana-specific additions and subtractions.
  • The portion of those adjustments allocated to beneficiaries.

Due to implementation issues in many tax software programs, fiduciaries and tax professionals must manually review these schedules to ensure that beneficiaries are receiving the correct allocation of taxable income and deductions.

4. Redesigned Schedules for Clarity

Several other schedules have been updated to better reflect Montana’s new tax structure:

  • Schedule II – Determines tax liability for nonresident estates or trusts.
  • Schedule III – Calculates credits for taxes paid to other states or countries.
  • Schedule IV – Applies to Electing Small Business Trusts (ESBTs) and determines tax owed.
  • Schedule V – Reporting of special transactions and amended return information.
  • Schedule K-1 – Beneficiary’s share of income (loss), deductions, credits, etc.
    • The Schedule K-1s now include a line item for the pass-through entity tax credit, along with a Part VI for other tax credits.
    • Part VII details the Montana adjustments and should be reviewed carefully for accuracy and agree to the beneficiary allocations on Schedule I Column C and Worksheet I Column C.

Despite these updates, tax professionals should not rely solely on software calculations—especially when determining income distributions to beneficiaries and Montana adjustments allocated to beneficiaries.

5. Simplified Tax Rates and Brackets

Montana fiduciaries now use the single filer tax rate structure. Additionally, trusts and estates are eligible for the Montana capital gains tax rate, aligning them with individual taxpayers.

6. Transition Adjustments for Prior Discrepancies

A one-time transition adjustment is available for estates and trusts that previously had Montana-specific tax adjustments, such as differences in capital losses, passive losses, or basis calculations. Fiduciaries must elect this adjustment by the 2024 tax return due date, including extensions.

Guidance from the Montana Department of Revenue

The Montana Department of Revenue has stated they will be modifying their instructions to provide further guidance next year and sending some clarification to the software vendors. However, it remains uncertain whether these updates will be available from software vendors before the April 15th filing deadline.

Given this uncertainty, fiduciaries and tax professionals must rely on the current instructions and apply careful judgment when interpreting ambiguous provisions.

Final Takeaways for Tax Professionals

The 2024 changes to Montana’s fiduciary tax laws require extra diligence in tax preparation. To ensure compliance and minimize errors:

  • Closely review Schedule I and Worksheet I for correct additions and subtractions allocations.
  • Stay updated on additional guidance from the Montana Department of Revenue.

For the latest official resources, refer to the Montana Form FID-3 Instructions.

By staying proactive and thoroughly reviewing returns, tax professionals can navigate these changes effectively and avoid costly mistakes for fiduciary clients.

 

This article was written by Kayleen Masters, CPA, Tax Manager at Eide Bailly, Billings.