Missouri Eliminates State Income Tax on Capital Gains

On July 10, 2025, Missouri Gov. Mike Kehoe signed House Bill 594, which eliminates state income tax on capital gains for individuals beginning with tax years on or after January 1, 2025.
Under the new law, individual taxpayers can subtract 100% of income treated as capital gains for federal tax purposes from their Missouri taxable income.
Both short-term and long-term capital gains are included — the law makes no distinction based on holding period.

The law also provides a path for corporations to receive the same deduction, but only after Missouri’s top individual income tax rate falls to 4.5% or lower. Once that happens, corporations could begin deducting 100% of their federally reported capital gains beginning the next tax year.
In 2025, the top individual rate is 4.7%, so the corporate deduction does not yet apply.

Though HB 594 was signed mid-2025, it is retroactive to capital gains income recognized on or after January 1, 2025. That means gains reported on 2025 federal returns can benefit from the exemption.
The law takes effect officially August 28, 2025, for state law purposes.

The capital gains exemption is estimated to reduce state revenues. Official state estimates suggest a drop of about $157 million in the current fiscal year, and around $111 million annually on an ongoing basis.
But some independent analyses believe the revenue loss could be much higher (e.g. over $600 million annually) depending on how many taxpayers use the deduction and how capital gains behave.
Critics argue the change makes Missouri’s tax structure more regressive, since high-income individuals are more likely to earn capital gains.

The biggest beneficiaries are likely those with substantial investment or real estate gains (stocks, cryptocurrency, real property, business sales) because they now avoid paying Missouri tax on those profits.
For many wage earners, the change may have limited impact (unless they also realize capital gains).
Municipalities, public services, and local school systems may face funding pressure if revenue shortfalls are not made up elsewhere.