Taxes for Retirees in Montana

Montana's Big Sky Country can come with a big price, and sometimes that price is collected in taxes – an important consideration for retirees looking to get some mileage out of their money. Here are some things retirees need to know about taxes on their treasure in the Treasure State.

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On the upside, Montana has no sales tax, inheritance tax, or estate tax, notes the Retirement Living Information Center. Small resort towns have the authority to ask their voters for a sales tax, notes the Flathead Beacon newspaper, but that has traditionally gone nowhere. On the downside, that money has to come from somewhere.

Income Tax  - Montana's income tax averages 6.9 percent statewide, compared to 4.72 percent nationwide, according to Sperling's Best Places. The Retirement Living Information Center notes that Montana levies an income tax on federal, state, or local pensions, although small exemptions are available for lower-income retirees. Specifically, all pension and retirement income received while living in Montana is taxed, to the extent that it is part of the federal adjusted gross income. Social Security income is also taxed. There are exemptions, however. Certain railroad retirement benefits are fully exempt, and up to $3,600 of pension and annuity income is exempt, below a certain total income, notes the Retirement Living Information Center. There are also limited exemptions for interest income for taxpayers age 65 and older. Military disability pay, particularly for older veterans or those disabled as a result of combat, can be exempt from income tax, though there's no guarantee of full exemption, the Retirement Living Information Center says. Veterans Affairs disability dependency and indemnity payments are not taxable.

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Property Taxes  - Here's where Montana makes up the revenue from the lack of sales tax. All real estate and personal property, such as an automobile, is subject to a property tax, but here again, seniors can claim exemptions. The median property tax in Montana is $1,465 a year on a $176,300 home, according to Tax-Rates.org. Montana rankw 29th in the average amount of property taxes collected, and 24th in property taxes as a percentage of median income. County tax collections range from $2,176 in Missoula County to $505 in Wibaux. Again, there are breaks available. For example, residences owned by some disabled residents and some spouses of deceased veterans are exempt from property tax, the Retirement Living Information Center says. There is a 34 percent exemption for any property, but you have to file for it. Also, a homestead exemption can apply for up to $250,000 of a property's value. There might be an unexpected break to living in a resort town. In Flathead County, home of Whitefish and its ski resort (median property tax collection $1,777, says Tax-Rates.org), a resort "bed tax" helps pay for streets, sidewalks and utilities in Whitefish, whose city council reduced the property tax to match the additional money from the bed tax, says the Flathead Beacon.