53.6% of Homeowners in Montana Will Face a Hidden Home Equity Tax If They Sell

Montana homeowners who’ve seen their property values soar may be in for a costly surprise. A new report from the National Association of Realtors® finds that 53.6% of Montana homeowners have more home equity than the IRS allows to be excluded from capital gains taxes. And for 18% of owners, those gains exceed even the $500,000 limit for married couples filing jointly.

This is because the capital gains tax exclusion—$250,000 for single filers, $500,000 for joint—hasn’t changed since 1997. Meanwhile, home prices across the U.S. have jumped more than 260%. That disconnect is pushing middle-class sellers into territory once reserved for high-end investors.

Montana’s home values have climbed thanks to long-term demand, especially in scenic and rural areas. But state tax policy adds another layer: capital gains are taxed as income, with a top rate of 6.1%, though a 2% credit drops the effective rate to 4.1%. When combined with federal tax liability, that can mean a five-figure surprise for homeowners who simply stayed in place and paid off their mortgage.

Equity that’s getting harder to use

This so-called hidden home equity tax is catching homeowners off guard. Many built wealth the old-fashioned way—by holding on for decades. But when it’s time to sell, they may find the IRS waiting with a bill.

The risk is especially high for retirees and aging homeowners looking to downsize or relocate. That tax can discourage them from moving, even when the equity could fund care or relocation. And that “stay-put penalty” is shrinking housing supply for everyone else.

It’s a ripple effect. Homes that would typically re-enter the market stay off the table. And buyers face rising prices, fewer options, and tight inventory driven by locked-in equity.

How Montana Compares in the West

Montana’s exposure is significant. At 53.6%, it’s above the national average, but behind high-cost neighbors like Colorado (59.5%) and Utah (61.2%). Still, the state’s 39.9% over the joint-filer limit ranks among the highest nationwide.

That’s a surprise in a market not known for luxury pricing. But appreciation over time adds up—especially in places like Bozeman, Missoula, and Flathead County. Even modest homes bought years ago now risk triggering capital gains taxes on real estate.

Montana’s growth in property value has been a long burn—not a boom. That makes it even more likely owners will be caught unaware. And more likely that equity will stay locked in place.

By 2035, Tax Exposure Will Soar

Projections show the problem getting worse. By 2035, nearly 70% of U.S. homeowners will exceed the $250K exclusion—and many in Montana will have gains well above that. Average tax liability increases projected by the NAR are 89.30% for homeowners exceeding the $250,000 exclusion and 62.40% for homeowners exceeding the $500,000 exclusion if regulations stay as they are.

The More Homes on the Market Act would raise the exemption to $500,000 for individuals and $1 million for couples, tied to inflation. But unless that change happens, more sellers will stay put. And more homes will stay off the market.

Montana homeowners should act now. Review your home equity situation, understand your exposure, and plan your timing. Because what looks like a profit on paper could come with a tax bill that’s all too real.

This article was produced with editorial input from Dina Sartore-Bodo, Gabriella Iannetta, and Allaire Conte.