Does Missouri recognize 1031 exchanges?
Yes. A Missouri 1031 exchange is recognized because Missouri adjusted gross income starts from federal adjusted gross income under Section 143.121 of the Missouri statutes. Gain you defer under Section 1031 never enters federal adjusted gross income, so it never reaches the Missouri return either.
What is different in Missouri is how little state tax is left to defer. House Bill 594 (2025) lets individuals subtract 100% of income reported as capital gain for federal purposes, starting with tax year 2025. For most individual owners, the Missouri tax on a sale is now limited to depreciation recapture that the federal return treats as ordinary income.
Federal 1031 rules that apply in Missouri
Missouri adds no deadlines of its own, so the federal timeline controls. You have 45 days from closing to identify replacement property in writing and 180 days, or your return due date if earlier, to close on it. Both properties must be real property held for investment or business use, and a qualified intermediary must hold the proceeds so you never touch them.
To defer all the gain, buy a replacement of equal or greater value and reinvest all the net cash. Cash you keep or debt you shed without replacing it is boot, and it is taxed in the year of the exchange. Our guide to 1031 exchange rules covers identification and boot in full, and the complete 1031 exchange guide walks through an exchange from start to finish.
How the 100% capital gains subtraction changes a Missouri exchange
For individual owners, the subtraction removes most of the Missouri reason to exchange. The Department of Revenue’s Letter Ruling 8397 (May 2026) ties the subtraction to the capital gain reported on federal Form 1040, line 7a. Long-term gain on a building, including unrecaptured Section 1250 gain from straight-line depreciation, is reported there and subtracted.
Two pieces can still carry Missouri tax. Section 1245 recapture on appliances, carpet and other personal property is ordinary income federally, not capital gain, so it should be expected to stay in Missouri income at rates up to 4.7%; the Department of Revenue has not ruled on recapture directly. And C corporations do not get the subtraction until the tax year after Missouri’s top individual rate drops to 4.5% or lower; it is 4.7% for 2025 and 2026. A corporation that owns Missouri apartments still has a full state reason to exchange.
The federal reasons are unchanged. Deferring the 20% capital gains rate, the 25% rate on depreciation and the 3.8% net investment income tax is still worth a great deal on a large sale.
| Owner type | Missouri tax on capital gain (2026) | Main reason to exchange |
|---|---|---|
| Individual, or pass-through owned by individuals | 0% (subtracted) | Federal tax, plus Missouri tax on 1245 recapture |
| C corporation | Taxed; subtraction not yet in effect | Federal and Missouri tax |
Does Missouri have a 1031 clawback?
No. Missouri is not one of the four states with a clawback or tracking rule for exchanges into other states. Those are California, Massachusetts, Montana and Oregon. A Missouri owner who trades into a building in Arkansas or Tennessee files nothing extra with Missouri to keep track of the deferred gain.
If you stay a Missouri resident and later sell the replacement in a taxable sale, the gain shows up on your federal return then. Under current law, the capital gain portion is subtracted on your Missouri return that year. If you have moved, the state where you live and the state where the replacement sits decide the tax, not Missouri.
Withholding at closing on a Missouri exchange
Your title company handles any state paperwork at closing, so ask them early whether anything applies to your sale, especially if you or your entity are based outside Missouri. The bigger point is that for an individual, the capital gain on a Missouri building is now subtracted from Missouri income, so the state tax at stake on most exchanges is small.
Federal rules still matter. If the seller is a foreign person, FIRPTA withholding under federal law can apply even in an exchange unless the IRS grants a reduced withholding certificate. Tell the title company and your intermediary at the start that the sale is part of an exchange, so the closing statement sends the proceeds to the intermediary and not to you.
Does Missouri regulate qualified intermediaries?
No. Missouri is not one of the nine states with a law regulating exchange intermediaries: California, Colorado, Connecticut, Idaho, Maine, Nevada, Oregon, Virginia and Washington. That puts the work of checking an intermediary on you.
- Ask for proof of a fidelity bond and errors and omissions insurance, with the amounts in writing.
- Ask whether your funds sit in a separate account in your name or in a pooled account, and who must sign to move them.
- Ask for statements on the account and how interest is handled.
- Confirm the intermediary is not your agent from the past two years, such as your attorney, CPA, employee or broker.
- Read the exchange agreement for what happens if the intermediary is sold or fails.
Common 1031 exchange paths for Missouri owners
Most Missouri exchanges follow one of a few paths, and none of them trigger extra Missouri filings.
Missouri to Missouri is the most common. An owner might trade a set of small buildings in south St. Louis for one larger property in St. Charles County, or move from Kansas City duplexes into a 30-unit building in Springfield. Missouri’s residential assessment ratio of 19% applies to apartments wherever they are in the state.
Missouri to another state works the same way federally. Owners often look at Kansas, Arkansas, Tennessee or the Sun Belt. Remember that the replacement state will tax the gain when you sell there, and some, such as Oregon or California, add rules of their own for later exchanges out.
Missouri into a Delaware statutory trust suits owners who want to stop managing property. A DST interest can qualify as replacement property, though you give up control of the asset and the timing of its sale.
Worked example: a Missouri exchange with cash taken out
An owner in Kansas City sells a 28-unit building for $2,500,000. After $100,000 of selling costs and with an adjusted basis of $900,000, the gain is $1,500,000, of which $400,000 is straight-line depreciation. The owner buys a $2,600,000 building in Springfield through a qualified intermediary but takes $150,000 in cash at closing.
The $150,000 is boot, so $150,000 of gain is recognized and $1,350,000 is deferred. Assuming the owner is in the top federal brackets and the recognized gain is taxed as unrecaptured Section 1250 gain, the federal tax on the boot is about $37,500 at 25% plus $5,700 of net investment income tax, or $43,200. Missouri tax on that boot is zero, because it is reported as capital gain and subtracted.
The federal tax deferred is larger: on the remaining $250,000 of depreciation at 25%, $1,100,000 of appreciation at 20% and 3.8% on the full $1,350,000, it comes to about $333,800. Had the owner sent all the cash to the intermediary and taken none, the whole $1,500,000 of gain would be deferred. The Missouri result would be the same either way for this owner, which shows where the value of a Missouri exchange now sits.
| Item | Amount |
|---|---|
| Sale price | $2,500,000 |
| Total gain | $1,500,000 |
| Cash boot taken | $150,000 |
| Gain deferred | $1,350,000 |
| Federal tax on boot (25% plus 3.8%) | $43,200 |
| Missouri tax on boot | $0 |
| Federal tax deferred | $333,800 |
Reverse and improvement exchanges for Missouri owners
If you find the replacement building before you sell, a reverse exchange lets you buy first. Under IRS Revenue Procedure 2000-37, an exchange accommodation titleholder takes title to the new property and holds it for up to 180 days while you sell the old one. An improvement exchange uses the same structure so exchange funds can pay for renovations before you take title.
Both cost more than a standard exchange and need an intermediary experienced in parking arrangements. Because Missouri regulates neither intermediaries nor accommodation titleholders, check the contract terms and the parking entity’s insurance yourself. Our reverse 1031 exchange guide explains the steps.
When selling outright may beat an exchange in Missouri
Because Missouri now takes so little from an individual’s gain, the case for exchanging rests on the federal tax alone. That makes a plain sale worth a fresh look for some owners.
- Owners who want to stop owning real estate and would only exchange into a DST to defer tax.
- Owners whose gain is modest, where the federal tax saved is smaller than the cost and risk of buying under a 45-day deadline.
- Owners who need the cash now and would otherwise take so much boot that little gain is deferred.
- Corporate owners, who still pay Missouri tax on gains and should run the numbers both ways.
Selling a Missouri apartment building as part of an exchange
Skyline buys apartment buildings with five or more units in Missouri. We buy directly, close on your timeline, and can work inside 1031 deadlines. We work with your intermediary on the contract assignment and can set a closing date that leaves time to line up your replacement before the 45 days start.
For the tax you would owe without an exchange, see Missouri capital gains tax on real estate. The 1031 exchange calculator runs the federal side with your own figures.
Selling? Spread the tax with seller-carry terms
If a large tax bill is what is keeping you from selling, an installment sale may help. When you carry part of the price as a note, the gain is generally reported as you receive payments instead of all in the year of sale. Some parts of the gain, such as certain depreciation recapture, can still be due up front, so run the numbers with your CPA first.
Skyline Capital Investments buys apartment buildings with five or more units and can offer seller-carry terms, or a delayed closing that fits your 1031 timeline. Send the address and unit count and we typically respond within 48 hours. How seller financing works · How an installment sale is taxed · Seller financing calculator.
Get A Seller-Carry Offer
