what are Montana transition adjustments

[SabrinaD2]

Montana transition adjustments are used to reconcile differences between federal and Montana tax rules. These adjustments apply to passive activity losses, short-term and long-term capital losses, and any differing basis. You can elect to report these adjustments on your 2024 Montana Form 2.

For more details, visit the Montana Department of Revenue's Tax Simplification Resource Hub and scroll down to transition adjustments.

[RentalsForMe]

And what happens if we do not elect to "adjust" the differences in 2024? What happens in 2025 that might be adverse to not taking the adjustments in 2024?

[BrittanyS]

If the election is not made on the 2024 return when you file 2025, the carryover amount will be what was on the 2024 return.  You will not be able to go back and make any adjustments that could benefit your carryover amount.  

@RentalsForMe 

[RentalsForMe]

If I select "Yes" to do the transition then TTD computes that I owe another $5000 in taxes. So I've selected "No". It seems that waiting until next year would zero out the difference but given the taxes that would be owed otherwise, waiting until next year is a benefit?

Does this make sense? Or have I missed something?

Thanks, @BrittanyS .

[BrittanyS]

Yes, Montana allows for the adjustment, and you can choose what benefits you the most.  As you stated, the carryover will be affected next year, and if you would prefer to wait until 2025 to address the taxes, that is your choice.  Just remember that the adjustment wasn't taken, so it will affect you when you file in 2025.

@RentalsForMe 

[ponderosa7]

Thank you for discussing this topic. In Turbo Tax, it says to enter the "Montana capital loss carryover," but the only capital loss carryover line item I see from the 2023 tax form is Line 19 Carryover of capital losses incurred prior to 2007. Was there even any capital loss carryover that was captured (for amounts after 2007)? In any state documentation of this transition, there is no mention where we should pull the prior MT capital loss carryover from. Turbo Tax isn't carrying over any amount from my prior year state return. Thanks for your help!   

[BrittanyS]

According to the Montana NOL carryover instructions, "Montana Class A NOL deductions designate NOL amounts that arose from losses incurred in a tax year beginning before January 1, 2018. In general, Class A NOL amounts may be carried back two years and forward 20 years".  However, As a result of legislation (see Legislative Changes below), the Montana NOL deduction and carryover beginning in Tax Year 2024 has been repealed. The following schedules have been removed: the Class A NOL Tracking Table, Class A/B Carryover Determination Schedule, and the NOL Carryover Table.  The form was removed for 2024.  This is why the carry over is not pulling over from the prior year state return.

@ponderosa7 

[Mal05]

So does that mean we can't carryover federal capital losses to Montana taxes even though they have a transition option for it? And if we are how do we allocate it between spouses if the return is married, filing jointly?

Mallory

[RobertB4444]

No, you can definitely carry over the capital losses using the transition option.  And if you are married filing jointly the investment income is usually assigned to whichever spouse is listed first on the return unless it is specified otherwise.

@Mal05