On July 10, 2025, Governor Mike Kehoe signed HB 594 into law, making Missouri the first state in the nation to fully exempt individuals from state capital gains taxes. The exemption takes effect on January 1, 2025.
The new law allows individual taxpayers to deduct 100% of the capital gains reported on their federal tax returns when calculating Missouri adjusted gross income. This applies to short-term and long-term gains from the sale of stocks, real estate, cryptocurrency, and other capital assets.
While the exemption applies to individuals and pass-through entities, it does not currently extend to C-corporations. However, the bill includes revenue-based triggers that could reduce or eliminate capital gains taxes for C-corporations in future years if state revenues surpass certain thresholds.
In addition to the capital gains exemption, HB 594 introduces several significant tax reforms aimed at simplifying the state's tax system and delivering broader tax relief. Key provisions include:
-
- Replacing the graduated income tax with a flat tax.
- Potentially lowering the corporate income tax rate.
- Increasing the standard deduction for individuals and families.
To address equity concerns and build broader support, the legislation also:
-
- Eliminates sales tax on diapers and feminine hygiene products (often referred to as the “pink tax”).
- Expands tax relief for seniors and disabled residents through enhanced credits and deductions.
Together, these changes represent one of the most comprehensive tax overhauls in Missouri's history.
Potential Implications and Planning Considerations
Residency and Relocation
-
- Missouri may become a more attractive destination for high-net-worth individuals from neighboring states like Illinois, Kentucky, and Nebraska. It also makes Missouri an alternative to zero tax states such as Florida, Texas, Nevada, and Tennessee.
- The exemption may reduce the incentive for Missouri residents to relocate to no-income-tax states before a significant capital gains event.
Investment Strategy Adjustments
-
- Asset location strategies become more important. Consider housing low dividend, capital growth investments within taxable accounts. Retirement accounts (IRAs, 401(k)s) can house income producing investments like high dividend paying stocks and bonds since retirement plan distributions remain taxable in Missouri.
- Investors with sizable assets in taxable accounts may shift toward long-term, growth-oriented investments to maximize capital appreciation and minimize interest or dividend income.
Trust and Estate Planning
-
- Trusts often realize capital gains; Missouri-domiciled trusts with Missouri beneficiaries could benefit substantially. Note that Missouri domiciled trusts without a Missouri beneficiary are already exempt from Missouri income taxes.
- With excellent trust laws in place already, Missouri becomes an even more appealing jurisdiction for establishing or relocating trusts from other states now that capital gains are exempt from taxation.
Real Estate and Business Sales
-
- The exemption could encourage investment in, and eventual sale of, appreciated real estate and privately held businesses in Missouri.
- Succession planning and M&A activity may accelerate as sellers aim to maximize after-tax proceeds.
Charitable Giving Strategy
-
- Donating appreciated assets to charity may become less compelling at the state level due to elimination of capital gains tax.
- Qualified Charitable Distributions (QCDs) from IRAs may gain appeal as they reduce income that is taxable in Missouri and do not require itemizing your deductions.
Installment Sales and Deferred Gains
-
- The benefit of installment sales as a strategy to defer state capital gains tax will diminish under the new exemption.
Opportunity Zones and 1031 Exchanges
-
- These tax-deferral tools lose relevance at the state level.
Private Equity, Venture Capital, and Family Offices
-
- Founders, venture capitalists, and general partners stand to benefit significantly, as carried interest—typically taxed as capital gains—will be exempt from Missouri tax.
Business Structure Implications
-
- When forming new entities (LLCs, S-Corps, C-Corps), founders should consider the nature of income.
- Given the exemption, flow through structures are more attractive for entities anticipated to incur capital gains as long as these remain taxable within a C-Corp.
Next Steps
This sweeping tax reform has wide-ranging implications for financial, estate, and business planning.
We recommend a comprehensive review of:
-
-
- Investment portfolios
- Trust and estate strategies
- Retirement account contributions and distributions
- Real estate and business holdings
- Residency and relocation considerations
DISCLAIMER: Parkside Financial Bank & Trust does not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. Investments are not insured by the FDIC or any government agency, provide no bank guarantee, are not a deposit and may lose value.
