Does Missouri have a capital gains tax?
Missouri capital gains tax for individuals is now zero on income reported as capital gain. Under House Bill 594 (2025), now Section 143.121 of the Missouri statutes, individuals may subtract 100% of income reported as a capital gain for federal income tax purposes when they figure Missouri adjusted gross income, for tax years beginning on or after January 1, 2025.
The Missouri Department of Revenue calls Missouri the first state to fully exempt capital gains for individual filers, and its announcement names real estate, stocks and cryptocurrency, both short-term and long-term. For an owner selling a building in St. Louis, Kansas City or Springfield, the state share of the bill drops from as much as 4.7% of the gain to little or nothing.
What counts as capital gain for the Missouri subtraction
The subtraction follows your federal return. In Letter Ruling 8397, issued May 28, 2026, the Department of Revenue said the subtraction is the capital gain reported on federal Form 1040, line 7a, and only to the extent it is included in federal adjusted gross income.
The same ruling set two limits. The subtraction is figured after capital losses are netted against gains, so you cannot add your losses back to make it bigger. Income that is reported as something else on the federal return does not qualify, even if it looks like a gain; the ruling’s example was short-term gain distributions from mutual funds, which are reported as ordinary dividends.
For a real estate seller, that means the label on your federal return decides the Missouri result. Gain on a building held more than a year runs through Form 4797 and Schedule D and lands on line 7a, so it is subtracted. Anything your preparer reports as ordinary income stays in Missouri income.
What Missouri still taxes when you sell a rental
Missouri still taxes the parts of a sale that the federal return treats as ordinary income. On most apartment sales, that is a smaller slice than it used to be, but it is not always zero.
- Section 1245 recapture: depreciation on appliances, carpet, cabinets and other personal property, often created by a cost segregation study, is reported as ordinary income on Form 4797, not as capital gain. The Department of Revenue has not ruled on recapture directly, but the statute and Letter Ruling 8397 cover only income reported as capital gain, so plan on this part staying taxable.
- Gain on property held one year or less, if your preparer reports it as ordinary income from business property rather than as capital gain.
- Interest on a seller-financed note, and any rents or other income you earn in the year of sale.
- Gains earned by a C corporation. The corporate subtraction only starts the tax year after Missouri’s top individual rate falls to 4.5% or lower, and the rate is 4.7% for 2025 and 2026.
Missouri income tax rates for 2026
Missouri’s top individual income tax rate is 4.7% for 2026, and it applies to Missouri taxable income above $9,436. The brackets below come from the Department of Revenue’s 2026 withholding formula and are the same for every filing status. The formula uses a standard deduction of $16,100 for single filers and $32,200 for a married filer whose spouse does not work.
Because the top bracket starts so low, almost any ordinary income left over from a building sale is taxed at 4.7%. That is the rate to use when you estimate the Missouri tax on recapture.
| Missouri taxable income (2026) | Rate |
|---|---|
| $0 to $1,348 | 0% |
| $1,348 to $2,696 | 2.0% |
| $2,696 to $4,044 | 2.5% |
| $4,044 to $5,392 | 3.0% |
| $5,392 to $6,740 | 3.5% |
| $6,740 to $8,088 | 4.0% |
| $8,088 to $9,436 | 4.5% |
| Over $9,436 | 4.7% |
How Missouri tax stacks on federal tax
With the subtraction in place, nearly all the tax on a Missouri apartment sale is federal. For 2026, IRS Revenue Procedure 2025-32 sets the 20% long-term capital gains rate above $613,700 of taxable income for married couples filing jointly and $545,500 for single filers. The 0% rate runs to $98,900 joint and $49,450 single, with 15% in between.
The straight-line depreciation you took on the building is unrecaptured Section 1250 gain, taxed federally at up to 25%. It is still capital gain on line 7a, so Missouri subtracts it. Section 1245 recapture is taxed federally at ordinary rates up to 37%, and Missouri taxes it at up to 4.7%. The 3.8% net investment income tax applies once modified adjusted gross income passes $250,000 joint or $200,000 single.
| Part of the gain | Federal rate (2026) | Missouri rate (2026) |
|---|---|---|
| Appreciation above original cost (held over a year) | 0%, 15% or 20% | 0% (subtracted) |
| Straight-line depreciation (unrecaptured 1250 gain) | Up to 25% | 0% (subtracted) |
| Section 1245 recapture on personal property | Ordinary rates up to 37% | Up to 4.7% |
| Net investment income tax | 3.8% above the MAGI thresholds | None |
Worked example: selling a $2 million apartment building in Missouri
A married couple in St. Louis County sells a 22-unit building for $2,000,000 in 2026. Selling costs are $80,000, so the amount realized is $1,920,000. They paid $1,000,000 and have taken $360,000 of depreciation: $300,000 straight-line on the building and $60,000 on personal property from a cost segregation study. Adjusted basis is $640,000 and the gain is $1,280,000. Their other taxable income is $450,000.
Federal tax: the $60,000 of Section 1245 recapture is ordinary income in the 32% bracket, or $19,200. The $300,000 of unrecaptured Section 1250 gain is taxed at 25%, or $75,000. The remaining $920,000 sits above the $613,700 threshold and is taxed at 20%, or $184,000. The 3.8% net investment income tax on the full gain adds $48,640. Federal tax is $326,840.
Missouri tax: the $1,220,000 reported as capital gain is subtracted. Only the $60,000 of Section 1245 recapture stays in Missouri income, and at 4.7% that is $2,820. Before HB 594, the full $1,280,000 would have been taxed, for about $60,160. The subtraction saves this couple roughly $57,340.
Their total bill is about $329,660, around 17.2% of the amount realized, and more than 99% of it is federal. You can test your own figures in the capital gains tax calculator.
| Item | Amount |
|---|---|
| Amount realized | $1,920,000 |
| Total gain | $1,280,000 |
| Federal tax | $326,840 |
| Missouri tax (1245 recapture only) | $2,820 |
| Missouri tax under the pre-2025 rules | $60,160 |
| Total tax | $329,660 |
How a 1031 exchange changes the picture in Missouri
A 1031 exchange still defers federal tax for Missouri owners, and that is now its main job. Missouri starts from federal adjusted gross income, so gain deferred federally never reaches the Missouri return, but most of that gain would have been subtracted anyway.
In the example, a full exchange into a replacement worth $2,000,000 or more would defer the $326,840 of federal tax and the $2,820 of Missouri tax on recapture. The state piece is small; the federal piece is why exchanges still make sense. Any cash or debt relief you keep is boot, taxed federally, with Missouri tax only on the part treated as ordinary income. Our guide to the 1031 exchange in Missouri covers the state details, and the 1031 exchange rules page covers the 45-day and 180-day deadlines.
The subtraction also changes the comparison between exchanging and selling. Before 2025, a Missouri owner who sold outright paid up to 4.7% to the state on top of federal tax. Now the cost of selling outright is almost entirely federal, so an owner close to retirement who wants cash may find a plain sale, or an installment sale, costs less than it did.
Installment sales and seller financing
An installment sale spreads the federal gain over the years you collect principal, and each year’s gain is reported on that year’s federal return. Because the Missouri subtraction looks at the capital gain on line 7a for the tax year, the gain portion of each payment is subtracted in the year you report it, as long as the subtraction is still law.
The interest the buyer pays you on the note is ordinary income, so Missouri taxes it at up to 4.7%. Section 1245 recapture is reported in full in the year of sale no matter how the payments are spread, which can make the first year’s federal and Missouri bills larger than owners expect. Run the numbers for both years with your preparer before you agree to carry a note.
Missouri residents selling property in other states
The subtraction works on your Missouri return, so it does not stop another state from taxing a gain on property located there. If you live in Kansas City and sell a building across the line in Kansas, Kansas taxes the gain as the state where the property sits.
On the Missouri side, that gain is still capital gain on your federal return, so it is subtracted from Missouri income. Ask your preparer how that interacts with any Missouri credit for tax paid to another state, because a credit is usually limited to Missouri tax on the same income, and here the Missouri tax on that gain may be zero.
Ways to keep the Missouri tax at zero
With capital gain subtracted, Missouri planning comes down to the ordinary income that remains.
- Get a recapture schedule from your preparer before you set the price allocation. The more of the price assigned to personal property, the more Section 1245 recapture you report.
- Hold the building more than a year so the gain is long-term on the federal return.
- Own the building as an individual or through a pass-through entity rather than a C corporation, since the corporate subtraction has not started.
- Keep federal planning first: a 1031 exchange, a Delaware statutory trust or an installment sale changes far more tax than any Missouri step.
Selling a Missouri apartment building to Skyline
Skyline buys apartment buildings with five or more units in Missouri, from St. Louis and Kansas City to Springfield and Columbia. We buy directly, close on your timeline, and can work inside 1031 deadlines. A firm closing date helps your CPA plan the federal side and line up any exchange.
For the tax a buyer will carry after closing, see property tax rate in Missouri. For the tenant rules that come with the building, see Missouri landlord-tenant law for apartment owners.
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.
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