Serine
Effective in the 2025 tax year, Missouri has enacted a major shift in its tax policy. Through House Bill 594, the state will now allow individual taxpayers to fully deduct capital gains reported on their federal tax returns from their Missouri state taxable income.
This effectively eliminates the state-level capital gains tax for individuals.Here are the top five things you need to know about this impactful tax reform:
1. 100% Deduction on Capital Gains for Individual Filers
Starting in 2025, Missouri residents can deduct 100% of their federal capital gains from their state income taxes. This applies to long-term capital gains and aligns with the federal tax definition, offering residents a powerful tax-saving opportunity at the state level.
2. Major Relief for Homeowners, Investors, and Small Business Owners
This new tax exemption benefits a broad spectrum of residents including:
- Home sellers
- Stock and property investors
- Small business owners
These individuals can now experience notable reductions in their Missouri state tax liabilities, especially when selling appreciated assets.
3. Expected Boost to the Missouri Real Estate Market
The elimination of capital gains tax is likely to stimulate the housing market. Real estate investors, flippers, and sellers may be encouraged to list and sell properties due to the state-level tax advantage, increasing activity and investment in the region.
4. Federal Capital Gains Tax Still Applies
While Missouri’s reform eliminates state tax on capital gains, individuals must still pay federal capital gains taxes. However, the overall tax burden is reduced, making Missouri a more attractive location for those looking to sell real estate, business equity, or high-value assets.
5. Long-Term Fiscal Impact on State Revenue
The state estimates that this reform will cost approximately $430 million in its first year, with recurring annual costs around $340 million. While taxpayers benefit, it may pose long-term challenges to Missouri’s state revenue streams and budgeting.
Missouri’s bold move to abolish capital gains tax at the state level offers residents a unique chance to improve their financial outcomes when selling appreciated assets.
It’s a compelling reason to reassess financial strategies, especially for those considering property or equity sales in the near future.
Residents are strongly advised to consult with a tax professional to evaluate how the reform affects their individual circumstances.