Missouri Eliminates Its Capital Gains Tax: What It Means for You

Missouri just became the first state with an income tax to eliminate its capital gains tax for individuals. As of January 1, 2025, investors and business owners filing in Missouri can deduct 100% of their federally reported capital gains from their state taxable income. That includes gains from stocks, bonds, real estate, businesses, crypto; basically, anything that shows up on your federal return.

For context, Missouri’s top income tax rate is 4.7%. So, if you realized $500,000 in gains last year, you’d save nearly $24,000 in state tax under the new rules.

Why Missouri Did It

Lawmakers argue that the change will:

·         Attract and retain wealth: keeping successful entrepreneurs, retirees, and investors from relocating to low-tax states.

·         Encourage reinvestment: allowing business owners to put more back into local economies.

·         Simplify planning: making Missouri one of the friendliest tax environments for individuals with significant investment income.

Of course, there’s a cost. The state projects a recurring $111M annual hit to revenue, with potential exposure of up to $625M if every eligible gain is excluded. The bet is that stronger growth and reinvestment will offset the loss.

What This Means for You

If you live, work, or own a business in Missouri, here are the practical takeaways:

·         Bigger After-Tax GainsMissouri investors and entrepreneurs will now keep substantially more from asset sales regardless of whether that’s selling a company, unloading appreciated real estate, or harvesting long-term stock gains.

·         Planning FlexibilityCapital gains often drive the biggest year-to-year swings in taxable income. With this change, managing the federal impact becomes the primary focus while state tax no longer complicates timing decisions.

·         Business Exit StrategyOwners considering a sale now have a clearer runway. A full exemption on state tax could meaningfully improve net proceeds, especially for closely held businesses.

·         Residency AdvantageMissouri now stands apart from neighbors like Illinois and Kansas, where gains are still taxed as ordinary income. That could influence where high-net-worth families choose to live or retire.

The Bottom Line

Missouri’s elimination of the capital gains tax is a material win for individual investors and business owners in the state. It removes a meaningful drag on wealth creation and sets Missouri apart nationally as a tax-friendly environment for investment activity.

For clients, this isn’t just a line-item savings, it’s an opportunity to rethink exit timing, reinvestment strategies, and long-term planning with more flexibility.

Have questions or want a more personalized analysis of what this means for your investments? Give us a call today.