Federal Income Tax Deductions on Montana Tax Returns

March 13, 2019

Several tax practitioners contacted us about the itemized deduction for federal income taxes paid. The Form 2 instructions limit the amount of the itemized deduction to the amount of federal income taxes assessed on the 2018 federal Form 1040.

We call this the direct limitation method.

The tax practitioners were concerned they had already filed returns deducting federal income taxes paid without this limitation.

Our intention was to offer this direct limitation method as an alternative to the recovery method which requires a calculation spread over two tax years.

Both the direct limitation method or the recovery method are correct. Montana tax returns already filed do not need to be amended.

Please remember: The recovery method may require an addition to income in the next year.