If you sell a house, land, or investment property in Missouri, you no longer owe any state capital gains tax on real estate in Missouri as an individual seller. A law signed in July 2025 lets individuals deduct 100% of their federally reported capital gains when calculating Missouri taxable income, retroactive to January 1, 2025.1Missouri Department of Revenue. Missouri First State to Fully Exempt Capital Gains Tax The federal capital gains tax still applies, and that is where your actual bill — and most of your planning — lives.
What Missouri Exempts and What It Doesn’t
House Bill 594, signed by Governor Mike Kehoe on July 11, 2025, allows individuals to deduct 100% of all capital gains reported on their federal return when figuring Missouri adjusted gross income. The deduction covers short-term and long-term gains, and it applies to real estate, stocks, cryptocurrency, and any other capital asset.1Missouri Department of Revenue. Missouri First State to Fully Exempt Capital Gains Tax Before this change, the state taxed gains as ordinary income at rates topping out at 4.7%.
One group is left out for now: C corporations. Under HB 594, corporate entities get the 100% deduction only once Missouri’s top individual income tax rate drops to 4.5% or lower. The current top rate is 4.7%, so property held inside a C corporation remains subject to Missouri’s 4% corporate income tax on gains from a sale.2Missouri Senate. HB594 – Modifies Provisions Relating to Taxation S corporations and partnerships pass gains through to individual owners, who then claim the full deduction on their personal returns.
Federal Capital Gains Rates You Will Actually Pay
With Missouri out of the picture for individual sellers, your tax bill is set entirely by federal rules. The rate turns on how long you owned the property and your overall taxable income.
Short-Term Versus Long-Term
Owned the property for one year or less? The gain is short-term and taxed at your ordinary federal rate, which can reach 37%. Owned it for more than a year? The gain is long-term and taxed at preferential rates.3Internal Revenue Service. Topic No. 409, Capital Gains and Losses
2026 Long-Term Brackets
For tax year 2026, long-term capital gains rates are:
- 0% on taxable income up to $49,450 (single) or $98,900 (married filing jointly)
- 15% on taxable income from $49,451 to $545,500 (single) or $98,901 to $613,700 (married filing jointly)
- 20% on taxable income above those thresholds
High-income sellers also pay the 3.8% Net Investment Income Tax when modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly), pushing the effective top federal rate to 23.8%. Most homeowners selling their main house land in the 15% bracket or avoid federal tax entirely through the primary residence exclusion.
Calculating Your Gain
Your taxable gain is the sale price minus your “adjusted basis” and minus selling expenses. Getting basis right is the single biggest lever on your bill.
Start with what you originally paid for the property. Add capital improvements made over the years: a new roof, an addition, a kitchen remodel, anything that added value, extended useful life, or adapted the property to a new use. Routine repairs and maintenance don’t count. The result is your adjusted basis.
From the sale price, subtract that basis and the selling costs — agent commission, title insurance, transfer taxes, legal fees, closing costs. What’s left is your capital gain.3Internal Revenue Service. Topic No. 409, Capital Gains and Losses
A quick example. You bought for $250,000, put $40,000 into 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 costs. Keep receipts and contractor invoices. The IRS won’t accept estimates.
The Primary Residence Exclusion
The federal exclusion under Internal Revenue Code Section 121 is the biggest break available to Missouri homeowners. You can exclude up to $250,000 of gain from the sale of your main home if you file single, or up to $500,000 if you’re married 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 used the home as your primary residence for at least two of the five years before the sale. The two years don’t need to 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 spouse can have claimed the exclusion on another sale within the past two years.
Stack this exclusion on top of Missouri’s state exemption and a married couple with up to $500,000 of gain on their primary residence can walk away owing nothing in income tax, federal or state.
Inherited Property and the Step-Up in Basis
Inherit real estate in Missouri and you receive a “stepped-up” basis equal to the property’s fair market value on the date the previous owner died, under 26 U.S.C. § 1014.5Office of the Law Revision Counsel. 26 USC 1014 Basis of Property Acquired From a Decedent That can wipe out most or all of the gain if you sell soon after inheriting.
Say your parent bought a house in 1985 for $60,000 and it was worth $350,000 when they died. Your basis is $350,000. Sell for $360,000 and your gain is $10,000, not $300,000. Missouri has no separate state estate or inheritance tax, so an inherited-property sale carries only the federal gain, which may itself be near zero.
Depreciation Recapture on Rentals and Investment Property
If you claimed depreciation on a rental, selling triggers depreciation recapture. The IRS taxes the portion of your gain tied to prior depreciation deductions at a maximum federal rate of 25%, regardless of your income bracket. This catches many landlords off guard because it runs higher than the standard 15% long-term rate.
Example: you bought a rental for $300,000 and claimed $80,000 in depreciation, dropping your adjusted basis to $220,000. Sell for $400,000 and your gain is $180,000. The first $80,000 is recaptured depreciation, taxed at up to 25%. The remaining $100,000 is taxed at your regular long-term rate.
Missouri’s 100% deduction covers the entire federal gain, including the recapture piece, so there’s no added state liability on top of the federal recapture tax.1Missouri Department of Revenue. Missouri First State to Fully Exempt Capital Gains Tax
1031 Exchanges for Investment Property
Investment property sellers who want to defer federal tax can still use a 1031 like-kind exchange, rolling the proceeds into a replacement investment property instead of taking the cash.6Office of the Law Revision Counsel. 26 USC 1031 Exchange of Real Property Held for Productive Use or Investment The deadlines are strict: 45 days from closing to identify replacement property in writing, and 180 days to close on it. A qualified intermediary must hold the proceeds; if you take possession of the money, the exchange fails. Since Missouri no longer taxes individual capital gains, a 1031 exchange today is purely a federal deferral tool.
Reporting the Sale on Your Missouri Return
You still have to report the sale and claim the deduction. On the federal side, real estate gains go on Schedule D, and investment property also runs through Form 4797. For Missouri, file Form MO-1040 and use Form MO-A to claim the capital gains deduction that zeros out your state liability. Attach copies of your federal Schedule D and supporting forms.7Missouri Department of Revenue. Form MO-1040 Individual Income Tax Long Form and Instructions
A large sale mid-year can also trigger a federal estimated-tax payment. If you don’t normally make quarterly payments, check whether you need to send one by the next deadline (April 15, June 15, September 15, or January 15) to avoid an underpayment penalty.
If you hold the property through a C corporation rather than individually, run the numbers with a tax professional before closing. Restructuring ownership ahead of a sale can be the difference between owing Missouri’s 4% corporate tax on the gain and owing nothing at the state level at all.