Administrative Rules of Montana › Department 42 - REVENUE › Chapter 42.2 - GENERAL DEPARTMENT RULES › Subchapter 42.2.3 - Public Participation and Penalty and Interest › Rule 42.2.308 - NONRESIDENT CALCULATION OF MONTANA SOURCE INCOME REALIZED AND RECOGNIZED WHEN MONTANA PROPERTY IS RELINQUISHED AS PART OF A SECTION 1031 EXCHANGE

Current through Register Vol. 13, July 5, 2024
(1) Gain realized on the transfer of Montana
				real or tangible personal property retains its Montana source income character
				and must be reported if and when the gain is recognized for federal income tax
				purposes.
(2) When the Montana
				property is relinquished in a section 1031 exchange for like-kind property, the
				gain realized as shown on the taxpayer's U.S. Treasury Form 8824 is generally
				the amount of Montana source income. If, however, the Montana property was
				itself acquired in a prior like-kind exchange as replacement property for
				property located outside the state, Montana source income does not include the
				gain attributable to the out-of-state property that has been deferred from the
				prior exchange as shown on the taxpayer's U.S. Treasury Form 8824 for that
				exchange. The following examples illustrate how the Montana source income may
				be calculated in different situations:
(a)
				Example 1 - A nonresident relinquishes unimproved Montana land with a fair
				market value of $100,000 and an adjusted tax basis of $10,000 in exchange for
				Wyoming property with a fair market value of $90,000 and $10,000 cash, and
				incurs exchange expenses of $2,000. The $88,000 realized gain reported on the
				taxpayer's Form 8824 is Montana source income, of which $8,000 is recognized
				and reportable in the year of sale and $80,000 is deferred and must be reported
				if and when the gain is recognized for federal income tax purposes:
Form 8824 filed with respect to Montana property
								relinquished
15
Cash received, FMV of other property received, plus
								net liabilities assumed by other party, reduced (but not below zero) by any
								exchange expenses
8,000
16
FMV of like-kind property you received
90,000
17
Add lines 15 and 16
98,000
18
Adjusted basis of like-kind property you gave up,
								net amounts paid to other party, plus any exchange expenses not used on line
								15
10,000
19
Realized gain (or loss). Subtract line 18 from line
								17
88,000
20
Enter the smaller of line 15 or line 19, but not
								less than zero
8,000
21
Ordinary income under recapture rules
0
22
Subtract line 21 from line 20. If zero or less,
								enter -0-. If more than zero, enter here and on Schedule D or Form 4797, unless
								the installment method applies
8,000
23
Recognized gain. Add lines 21 and 22
8,000
24
Deferred gain (or loss). Subtract line 23 from line
								19
80,000
25
Basis of like-kind property received. Subtract line
								15 from the sum of lines 18 and 23
10,000
(b)
				Example 2 - Same facts as in (2) (a) except the Montana property included
				improvements with a fair market value of $12,000 and $1,000 is reportable as
				ordinary income under the recapture rules because of depreciation deductions
				taken with respect to those improvements. The result is the same as the result
				in (2) (a), except that $1,000 of the $8,000 Montana source income recognized
				and reportable in the year of sale is ordinary income.
Form 8824 filed with respect to Montana property
								relinquished
15
Cash received, FMV of other property received, plus
								net liabilities assumed by other party, reduced (but not below zero) by any
								exchange expenses
8,000
16
FMV of like-kind property you received
90,000
17
Add lines 15 and 16
98,000
18
Adjusted basis of like-kind property you gave up,
								net amounts paid to other party, plus any exchange expenses not used on line
								15
10,000
19
Realized gain (or loss). Subtract line 18 from line
								17
88,000
20
Enter the smaller of line 15 or line 19, but not
								less than zero
8,000
21
Ordinary income under recapture rules
1,000
22
Subtract line 21 from line 20. If zero or less,
								enter -0-. If more than zero, enter here and on Schedule D or Form 4797, unless
								the installment method applies
7,000
23
Recognized gain. Add lines 21 and 22
8,000
24
Deferred gain (or loss). Subtract line 23 from line
								19
80,000
25
Basis of like-kind property received. Subtract line
								15 from the sum of lines 18 and 23
10,000
(c)
				Example 3 - Same facts as in (2) (a) except the Montana property relinquished
				was replacement property exchanged for Oregon property in a prior like-kind
				exchange. In the prior like-kind exchange, the deferred gain or loss, as shown
				on the nonresident's Form 8824 was $50,000. The nonresident's Montana source
				income is $38,000, the $88,000 gain realized shown on the Form 8824 filed with
				respect to relinquishment of the Montana property, less the $50,000 deferred
				gain as reported on the Form 8824 filed with respect to relinquishment of the
				Oregon property. Of the $38,000 Montana source income realized, the $8,000
				recognized for federal income tax purposes in the year of sale is currently
				reportable and $30,000 is deferred and must be reported if and when the gain is
				recognized for federal income tax purposes.
Form 8824 filed with respect to Oregon
							 property relinquished
24
Deferred gain (or loss). Subtract line 23 from line 19
50,000
Form 8824 filed with respect to Montana property
								relinquished
15
Cash received, FMV of other property received, plus
								net liabilities assumed by other party, reduced (but not below zero) by any
								exchange expenses
8,000
16
FMV of like-kind property you received
90,000
17
Add lines 15 and 16
98,000
18
Adjusted basis of like-kind property you gave up,
								net amounts paid to other party, plus any exchange expenses not used on line
								15
10,000
19
Realized gain (or loss). Subtract line 18 from line
								17
88,000
20
Enter the smaller of line 15 or line 19, but not
								less than zero
8,000
21
Ordinary income under recapture rules
0
22
Subtract line 21 from line 20. If zero or less,
								enter -0-. If more than zero, enter here and on Schedule D or Form 4797, unless
								the installment method applies
8,000
23
Recognized gain. Add lines 21 and 22
8,000
24
Deferred gain (or loss). Subtract line 23 from line
								19
80,000
25
Basis of like-kind property received. Subtract line
								15 from the sum of lines 18 and 23
10,000