If you sell real estate in Missouri, you will not owe any Missouri capital gains tax on the profit as an individual seller, but you will still owe federal capital gains tax. Missouri became the first state to fully exempt capital gains from state income tax starting January 1, 2025, so the tax planning that matters for Missouri real estate sales now happens almost entirely at the federal level, where rates run from 0% to 23.8% depending on your income, how long you owned the property, and which exclusions you qualify for.
What Missouri Exempts
House Bill 594, signed by Governor Mike Kehoe on July 11, 2025, lets individuals deduct 100% of all capital gains reported on their federal return when calculating Missouri adjusted gross income.1Missouri Department of Revenue. Missouri First State to Fully Exempt Capital Gains Tax The deduction covers short-term and long-term gains alike, from real estate as well as other capital assets. Your profit from selling Missouri property still appears on your federal return, but it is subtracted entirely from your state taxable income.
Before this change, Missouri taxed capital gains as ordinary income at the same graduated rates as wages, topping out at 4.7%. A seller netting $200,000 could have owed roughly $9,400 in state tax alone. That liability is now zero for individual filers.
Corporations are a different story. Under HB 594, C corporations can deduct capital gains only once Missouri’s top individual income tax rate drops to 4.5% or lower.2Missouri Senate. HB594 – Modifies Provisions Relating to Taxation The 2025 top rate is 4.7%, so property held in a C corporation still faces Missouri’s 4% corporate income tax on the gain. S corporations and partnerships pass gains through to individual owners, where the full deduction applies.
Federal Rates You Still Pay
Because Missouri no longer taxes the gain, federal tax is the only income tax on your sale. The rate turns on how long you owned the property.
Own it a year or less and the profit is a short-term gain, taxed at your ordinary federal rate, which can reach 37%. Hold it more than a year and the gain qualifies as long-term at much lower rates.3Internal Revenue Service. Topic No. 409, Capital Gains and Losses
2026 Long-Term Capital Gains Brackets
- 0%: taxable income up to $49,450 (single) or $98,900 (married filing jointly)
- 15%: taxable income from $49,451 to $545,500 (single) or $98,901 to $613,700 (married filing jointly)
- 20%: taxable income above $545,500 (single) or $613,700 (married filing jointly)
Higher earners pay an additional 3.8% Net Investment Income Tax on capital gains once modified adjusted gross income exceeds $200,000 for single filers or $250,000 for married couples filing jointly. That brings the top effective federal rate to 23.8%.
Figuring Your Gain
Your gain is the sale price minus your adjusted basis and your selling costs. Getting basis right is where most of the arithmetic goes.
Start with the original purchase price. Add capital improvements made over the years: a new roof, a kitchen remodel, a room addition, anything that adds value, extends the property’s useful life, or adapts it to a new use. Routine maintenance and repairs do not count. That total is your adjusted basis.
From the sale price, subtract the adjusted basis and your selling expenses (agent commission, title insurance, transfer taxes, legal fees, closing costs). What remains is your taxable gain.3Internal Revenue Service. Topic No. 409, Capital Gains and Losses
Say you bought for $250,000, spent $40,000 on improvements, and sold for $450,000 with $30,000 in selling costs. Your gain is $130,000: $450,000 minus a $290,000 adjusted basis minus $30,000 in expenses. Keep the receipts and contractor invoices. The IRS will not accept estimates.
The Primary Residence Exclusion
The largest federal break for Missouri homeowners is Internal Revenue Code Section 121. You can exclude up to $250,000 of gain on the sale of your primary residence if you file single, or up to $500,000 filing jointly.4Office of the Law Revision Counsel. 26 USC 121 Exclusion of Gain From Sale of Principal Residence
To qualify, you must have owned and lived in the home as your primary residence for at least two of the five years before the sale. The two years need not be consecutive. For the $500,000 joint exclusion, both spouses must meet the use test, at least one must meet the ownership test, and neither can have claimed the exclusion on another home within the past two years.
Stacked with Missouri’s state-level exemption, a married couple selling a home with up to $500,000 of gain can owe zero at both the federal and state level. That is a common outcome in Kansas City and St. Louis where long-held homes have appreciated significantly.
Inherited Property and the Step-Up in Basis
Inheriting Missouri real estate resets your basis to the property’s fair market value on the date the previous owner died. This step-up under 26 U.S.C. ยง 1014 can wipe out most or all of the federal gain if you sell soon after inheriting.5Office of the Law Revision Counsel. 26 USC 1014 Basis of Property Acquired From a Decedent
If your parent bought a house in 1985 for $60,000 and it was worth $350,000 at their death, your basis is $350,000. Sell it for $360,000 and your taxable gain is $10,000, not $300,000. Missouri imposes no separate estate or inheritance tax, so heirs selling inherited property in the state face an unusually light tax burden.
Depreciation Recapture on Rental Property
Landlords who claimed depreciation deductions face a separate federal wrinkle when they sell. The IRS taxes the portion of the gain tied to prior depreciation at a maximum federal rate of 25%, regardless of your income bracket. That rate exceeds the 15% long-term rate most sellers pay, and it catches many owners by surprise.
Suppose you bought a rental for $300,000 and claimed $80,000 in depreciation over the years, dropping your adjusted basis to $220,000. Sell for $400,000, and the first $80,000 of your $180,000 gain is taxed at up to 25% as recaptured depreciation. The remaining $100,000 is taxed at your regular long-term rate.
Missouri’s 100% deduction still covers the entire federal gain, including the recapture portion, so there is no additional state liability.1Missouri Department of Revenue. Missouri First State to Fully Exempt Capital Gains Tax The federal tax on recapture, however, remains.
1031 Exchanges for Investment Property
Investment property owners who do not want to cash out can defer the federal gain by rolling proceeds into a replacement property through a 1031 like-kind exchange.6Office of the Law Revision Counsel. 26 USC 1031 Exchange of Real Property Held for Productive Use or Investment
The deadlines are strict. After closing on the sale, you have 45 days to identify potential replacement properties in writing and 180 days to complete the purchase. Miss either window and the exchange fails, leaving you to owe tax on the full gain. A qualified intermediary must hold the sale proceeds during the exchange period; taking possession yourself disqualifies the transaction.
Since Missouri no longer taxes the gain, a 1031 exchange now matters only for federal deferral. If avoiding Missouri tax was your only reason for structuring one, that reason is gone.
Reporting the Sale
You still have to report the sale correctly on both returns even though Missouri owes you nothing on the gain. On the federal side, use Schedule D, and Form 4797 if the property was held for investment.
On the Missouri side, file Form MO-1040 and use Form MO-A (Individual Income Tax Adjustments) to claim the capital gains deduction that zeroes out the state liability. Attach a copy of your federal Schedule D and supporting forms.7Missouri Department of Revenue. Form MO-1040 Individual Income Tax Long Form and Instructions
A large gain can also create a federal estimated tax obligation. If you do not normally make estimated payments and you sell mid-year, you may need to send a payment by the next quarterly deadline (April 15, June 15, September 15, or January 15) to avoid an underpayment penalty.
How Your Property Is Titled
Ownership structure matters more than it used to. Individuals get the full exemption immediately. Property held in a C corporation stays exposed to Missouri’s 4% corporate income tax on the gain until the top individual rate drops to 4.5% or below.2Missouri Senate. HB594 – Modifies Provisions Relating to Taxation S corporations and partnerships pass gains through to individual owners, who then claim the deduction on their personal returns. If your investment real estate sits in a C corporation and a sale is on the horizon, a tax professional can tell you whether restructuring first would save the state tax.