1. What a cost segregation study does
A building normally depreciates over 27.5 years (residential) or 39 years (commercial). A cost segregation study breaks the purchase price apart and reclassifies components like flooring, cabinetry, dedicated electrical, and land improvements into 5, 7, and 15-year property, so a large slice of the basis depreciates on much shorter schedules.
On the federal return, that reclassified property also qualifies for bonus depreciation, which restores a 100% first-year write-off for qualifying property acquired and placed in service after January 19, 2025. States set their own rules, which is where Montana comes in.
2. Montana and federal bonus depreciation
Montana conforms in full to IRC 168(k) bonus depreciation for both individual and corporate income tax. MCA 15-30-2101 defines the Internal Revenue Code as the Code 'as amended, or as it may be labeled or further amended,' giving Montana rolling conformity, and since TY2024 (SB 399, 2021) the individual return starts directly from federal taxable income with no depreciation addback or modification. The state therefore automatically picked up the OBBBA's permanent 100% bonus depreciation for qualified property acquired and placed in service after January 19, 2025; Tax Foundation's post-OBBBA conformity table lists Montana as conforming to 168(k), 168(n), 174, and 179. Nothing in the 2025 legislative session decoupled from federal depreciation -- the main income tax bill, HB 337, only changed rates, brackets, and the state EITC.
Worked example
A $1,000,000 building, with and without a study
Illustrative only. A residential rental purchased for $1,000,000 of building basis (land excluded), acquired and placed in service after January 19, 2025.
Building basis
$1,000,000
Reclassified to 5, 7, and 15-year property (25%)
$250,000
Federal first-year deduction at 100% bonus
$250,000
Year 1 on that $250,000 without a study (27.5-year straight line)
about $9,100
Montana conforms to federal bonus depreciation, so the state return mirrors the $250,000 first-year deduction.
Model your own numbers with the tax strategy projector.
3. Section 179 in Montana
Full conformity at the federal limits via rolling conformity and the federal-taxable-income starting point. Montana automatically adopts the OBBBA-increased Section 179 cap ($2.5 million expensing limit, $4 million phase-out threshold for 2025, indexed thereafter) with no separate state cap or adjustment.
4. Does it still help in Montana?
Yes, fully. Montana follows federal MACRS recovery periods (5/7/15/27.5/39-year) and the full federal depreciation deduction with zero state modification, so every dollar of first-year bonus depreciation a cost segregation study unlocks federally flows straight through to the Montana return.
- •Since TY2024 (SB 399, 2021 session), Montana individual taxable income starts from federal taxable income, not federal AGI -- there is no state depreciation schedule and no bonus or Section 179 addback at all.
- •Rolling conformity comes from the statutory definition in MCA 15-30-2101: the IRC 'as amended, or as it may be labeled or further amended,' so OBBBA provisions applied automatically with no legislative action.
- •Montana's 2025 session cut rates rather than decoupling: HB 337 widens the 4.7% bracket and lowers the top rate from 5.9% toward 5.4% by TY2027 (with an interim step in 2026), slightly shrinking the per-dollar value of state deductions over time.
- •Net long-term capital gains get preferential Montana rates (3.0%/4.1% under MCA 15-30-2103), which matters at sale/recapture time for investors who front-loaded depreciation.
- •Corporate income tax (6.75%) conforms the same way via rolling conformity; Tax Foundation projects Montana's 168(k) conformity alone costs the state roughly $42M in TY2026 revenue, i.e., real savings flowing to taxpayers.
- •Nonresident owners of Montana rental property still file Montana Form 2 on Montana-source income and get the same full federal depreciation flow-through.
5. The exit: recapture and timing
The accelerated deductions come back into view when you sell. Gain attributable to the 5, 7, and 15-year property is Section 1245 recapture, taxed at ordinary rates, and the straight-line depreciation on the building itself is unrecaptured Section 1250 gain, taxed at up to 25%. A study does not create that bill, it moves deductions forward, but the timing of the sale decides how much of the benefit you keep.
Two levers manage the exit. A 1031 exchange defers both flavors of recapture along with the rest of the gain, and simply holding the property lets the time value of the early deductions do its work; most owners want a 3 to 5 year horizon before a taxable sale for the math to stay comfortably positive. Model the exit before you commission the study, not after.