Missouri's Capital Gains Exemption: The First State to Go to 0%
Missouri became the first state in the nation to fully exempt individual capital gains from state income tax, effective January 1, 2025 (HB 594). Missouri residents who sell stocks, real estate, or other capital assets owe zero state income tax on the gains. Corporate capital gains remain taxable.
What HB 594 did
Missouri House Bill 594 enacted a 100% individual capital gains exemption from Missouri state income tax. The law was signed and took effect for tax year 2025, meaning it first applies to returns filed in 2026 for the 2025 tax year. Before HB 594, Missouri taxed capital gains as ordinary income at rates up to 4.7%.
The exemption is not a deduction or a partial exclusion. It removes individual capital gains entirely from Missouri adjusted gross income. The treatment in the data file is listed as exempt, reflecting a complete exemption.
What the exemption covers
The Missouri exemption applies to all individual capital gains, including:
- Long-term capital gains (LTCG): Gains from assets held more than one year, such as stocks, mutual funds, and real estate.
- Short-term capital gains (STCG): Gains from assets held one year or less. These are taxed as ordinary income at the federal level but are exempt in Missouri.
- Real estate gains: Gains from the sale of property (beyond any federal exclusion you also claim).
- Investment account gains: Gains realized in taxable brokerage accounts.
- Business asset sales: Gains from the sale of business assets by individual owners (sole proprietors, partners, S corporation shareholders).
What the exemption does not cover
Two important categories are not covered:
- Corporate capital gains: If you own a C corporation, capital gains realized at the corporate level are still subject to Missouri corporate income tax. Only individual taxpayers benefit from the exemption.
- Federal capital gains tax: Missouri's exemption has no effect on your federal return. You will still owe federal capital gains tax at the applicable rate (see the federal section below).
How much Missouri residents save
To understand the savings, compare a Missouri resident to a resident of a state that still taxes capital gains as ordinary income.
Example: $100,000 long-term capital gain
- Missouri resident: State capital gains tax = $0. The $100,000 gain is entirely exempt from Missouri income tax under HB 594.
- Colorado resident: Colorado taxes capital gains as ordinary income at a flat rate of 4.4%. State tax = $100,000 x 4.4% = $4,400.
- Minnesota resident: Minnesota taxes capital gains as ordinary income at rates up to 9.85%. At a 9.85% rate, state tax = $100,000 x 9.85% = $9,850.
A Missouri resident with $100,000 in capital gains saves $4,400 compared to a Colorado resident and up to $9,850 compared to a high-bracket Minnesota resident, solely from the state-level exemption.
All three residents still owe federal long-term capital gains tax. For a single filer, the federal 2026 brackets are: 0% on gains within the first $49,450 of taxable income, 15% up to $545,500, and 20% above that (per Rev. Proc. 2025-32).
National significance
Before HB 594, no U.S. state had enacted a complete individual capital gains exemption. Several states tax capital gains at reduced rates or provide partial exclusions, but Missouri's full exemption is the first of its kind. It positions Missouri as an attractive destination for retirees and investors who realize significant capital gains, such as those selling a business or a large investment portfolio.
Other states with no income tax (Florida, Texas, Nevada, Washington, Wyoming, South Dakota, Alaska, Tennessee, New Hampshire) effectively exempt capital gains by not having an income tax at all. Missouri is distinct because it has an income tax that taxes wages and other income but carves out capital gains specifically for individuals.
How to claim the exemption
The exemption is automatic on Missouri Form MO-1040. Individual capital gains are excluded when computing Missouri adjusted gross income. You do not need to file a separate form or elect into the exemption. Review the current MO-1040 instructions from the Missouri Department of Revenue for the specific line treatment, as form instructions are updated each filing season.
If you have capital gains from a pass-through entity (S corporation or partnership), the gains flow through to your individual return and are also exempt, provided you are an individual taxpayer. Work with a tax professional if your situation involves multiple entity types.
Federal capital gains taxes still apply
Missouri's exemption covers only the state tax. Federal long-term capital gains tax rates for 2026 are:
- 0%: Taxable income up to $49,450 (single) or $98,900 (married filing jointly).
- 15%: Taxable income from $49,450 to $545,500 (single) or $98,900 to $613,700 (MFJ).
- 20%: Taxable income above $545,500 (single) or $613,700 (MFJ).
Source: Rev. Proc. 2025-32, section 4.03.
High-income Missouri residents may also owe the 3.8% Net Investment Income Tax (NIIT) on capital gains. See the NIIT guide for details on the MAGI thresholds and how the surtax is calculated.