Missouri enacts income tax capital gains exemption
On July 10, 2025, Gov. Mike Kehoe signed into law 2025 Missouri H.B. 594, which excludes capital gains from Missouri individual income tax starting in 2025. The law contains a revenue-based trigger that could grant this same deduction to C corporations as early as 2028.
Historically, Missouri has taxed individuals on both short- and long-term capital gains at ordinary income rates, a departure from the IRS’s approach of taxing long-term capital gains at preferential rates of 0%, 15% or 20%.
Retroactive to tax years beginning on or after January 1, 2025, individual taxpayers may deduct 100% of “all income reported as a capital gain for federal income tax purposes” when computing their Missouri taxable income. This would cover gains from the sale of assets such as stocks, bonds, cryptocurrency and real estate. Because the bill does not distinguish between short- and long-term capital gains, they are likely both exempt under this new law.
Possible implications and structuring considerations
Given its newfound status as the first state to fully exempt capital gains from personal income taxation, Missouri’s new tax law may attract high-net worth individuals from neighboring states.
This new law will almost certainly promote restructuring of transactions to generate capital gains. In addition, because the bill does not distinguish between capital gains recognized directly by an individual and capital gains reported to them on a Schedule K-1 issued by a pass-through entity (partnership, LLC or S corporation), both types of capital gains are presumably tax-free under this law.
Corporate income tax impact
Missouri’s corporate income tax code will include this same deduction if Missouri’s top marginal personal tax rate drops to 4.5% or less. This means that the capital gain deduction could be available to corporate taxpayers as soon as 2028.
- Under 2022 Missouri S.B. 3 & 5, Missouri’s top personal income rate may be reduced by 0.1% per calendar year if certain annual revenue goals are met.
- For tax year 2024, Missouri’s top marginal personal income tax rate is 4.8%, meaning that the rate could be reduced to 4.5% as early as 2027.
- Because the corporate tax capital gains deduction would take effect the following tax year, Missouri corporate taxpayers could be entitled to this 100% capital gains deduction as early as tax year 2028.
How Wipfli can help
Wipfli's team of experienced professionals is here to help you navigate the new law. Contact us to learn more.
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