Missouri Gov. Mike Kehoe signed House Bill 594 on July 10, 2025, making Missouri the first state to exempt capital gains entirely from individual income tax. Individuals may subtract 100% of the capital gains they report for federal purposes when computing Missouri income, for tax years beginning on or after January 1, 2025, according to the governor's office. For investors, business owners and property sellers who live in Missouri, the state tax on gains disappears for the current year.
What changed
- Individuals. A full deduction for capital gains included in federal income, covering both short-term and long-term gains on assets such as stocks, real estate and cryptocurrency, as the Missouri Department of Revenue describes the provision.
- Corporations. A matching 100% subtraction becomes available in the tax year after Missouri's top individual income tax rate falls to 4.5% or lower. The top rate for 2025 is 4.7%, so corporations do not qualify this year. Existing law lowers the top rate in steps if general revenue collections hit targets, according to Stinson LLP.
- Other provisions. The bill raises the senior property tax credit to $1,550 from $1,000 for homeowners and to $1,055 from $750 for renters, effective January 1, 2026, and exempts diapers, incontinence products and feminine hygiene products from state and local sales tax.
Who is affected
The benefit is concentrated among Missouri residents who realize large gains: families selling closely held businesses, executives selling company stock, real estate investors and active traders, since short-term gains qualify as well. Federal tax does not change. A Missouri resident still owes federal capital gains tax and, above $200,000 of modified adjusted gross income for single filers or $250,000 for joint filers, the 3.8% net investment income tax.
Deal structure can matter. Stinson notes that when a business operates in several states, a sale of its assets may require gain to be apportioned to those other states, while gain on a sale of equity by a Missouri resident individual may be wholly exempt from state tax.
The after-tax math
Example: a St. Louis couple sells a family business for a $10 million gain in 2025, structured as a stock sale. Before HB 594, that gain would have been taxable in Missouri at rates up to 4.7%, roughly $470,000. Under the new law, Missouri tax on the gain is zero. Their federal bill is unchanged.
| Capital gain | Missouri tax at 4.7% under prior law | Missouri tax under HB 594 | State tax saved |
|---|---|---|---|
| $500,000 | $23,500 | $0 | $23,500 |
| $2,000,000 | $94,000 | $0 | $94,000 |
| $10,000,000 | $470,000 | $0 | $470,000 |
The figures apply the top rate to the entire gain for simplicity; actual prior-law liability would depend on other income, deductions and the rate schedule.
Moves to discuss with your advisor
Households with large pending gains often revisit timing, structure and residency after a change like this. Points worth raising with a CPA or attorney include whether a planned business sale could be structured as an equity sale, how gains would be treated if a family moves into or out of Missouri during the year, and whether 2025 estimated tax payments or withholding are now too high. The Department of Revenue has suggested that preparers review withholding for affected clients.
What to watch
Watch for Department of Revenue forms and instructions implementing the subtraction for the 2025 filing season, the timing of the next scheduled reduction in the top individual rate that would switch on the corporate deduction, and whether lawmakers in other states propose similar exemptions.
Sources
- First reported Governor Kehoe Signs Bold Tax Cuts and Pro-Business Legislation into Law — Office of Missouri Governor Mike Kehoe
- Missouri; First State to Fully Exempt Capital Gains Tax — Missouri Department of Revenue
- Missouri Eliminates Capital Gains Tax — Stinson LLP
- Topic no. 559, Net investment income tax — IRS
After TAX is an independent publication. Articles are general information, not tax, legal or investment advice. Consult a licensed professional about your situation.
