Capital gains taxes can eat into the profits you make from selling investments, sometimes leaving you with less money than you might have expected.
But one state has changed its tax policy to help its residents keep more of their hard-earned profits.
On July 10, 2025, Missouri Gov. Mike Kehoe signed House Bill 594 into law. The legislation eliminates the state tax on capital gains for individuals as of January 1, 2025.
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In a statement regarding the bill’s passage, the governor described the tax changes as pro-growth — “keeping more money in the hands of Missouri families and less in government coffers.”
The change, projected to cost around $350 million a year, makes Missouri the first U.S. state with an individual income tax to eliminate capital gains taxes for individuals. But will other states follow?
New capital gains tax exemption in Missouri
- Beginning with the 2025 tax year, Missouri residents won’t pay state income tax on capital gains from stocks, bonds, real estate, and other assets, regardless of the holding period.
- Taxpayers can deduct 100% of the capital gains they report federally from their Missouri taxable income.
- The exemption broadly applies to gains from the sale of a home, farmland, business ownership transfers, and investment portfolios.
The capital gains tax change is part of a broader state tax reform package.
Other elements include expanded property tax credits for older adults and new sales tax exemptions on essential products like diapers and feminine hygiene items.
The legislation also contains provisions for corporate taxpayers. If Missouri’s top individual income tax rate falls to 4.5% or below, corporations will be eligible to deduct 100% of their federally reported capital gains from Missouri taxable income beginning the following tax year.
Some policy analysts argue that the policy raises questions about tax equity. That’s because the primary beneficiaries of capital gains exemptions tend to be wealthier households with substantial investment incomes.
However, supporters say the capital gains tax policy will make Missouri more competitive by encouraging capital retention and potentially attracting high-net-worth individuals.
What about the federal capital gains tax rate?
It is important to note that Missouri’s capital gains exemption applies only at the state level and does not affect federal tax obligations.
Capital gains taxes are levied on profits from the sale of assets like stocks, mutual funds, and real estate. The rate at which those gains are taxed depends on your taxable income and how long you've held the asset. But keep in mind that capital gains tax rates are generally lower than the tax rates for ordinary income like wages.
- Federal capital gains tax rates haven’t changed for 2025. Those range from 0% to 20% depending on income.
- This means taxpayers in Missouri will continue to comply with federal requirements.
Interestingly, there has been some chatter about a new proposal to eliminate the federal capital gains tax on home sales.
Under current federal tax rules, eligible homeowners can exclude up to $250,000 (or $500,000 for married couples) in gains when selling a primary residence. Amounts above those exclusion limits are generally taxed at normal capital gains rates.
However, in recent years, more people across the United States have triggered capital gains taxes when selling their primary homes, since the home sale exclusion limits have remained unchanged since 1997, despite soaring home values in many areas.
Rep. Marjorie Taylor Greene (R-Ga.) has introduced the No Tax on Home Sales Act, which, if eventually passed and signed into law, would generally eliminate capital gains taxes on home sales.
For more information, see: No Capital Gains Tax on Home Sales Coming Soon?
States with no capital gains tax: Will more follow?
Missouri’s move to eliminate the state capital gains tax could catch the attention of other states considering how to tax investment income.
Currently, several states have no capital gains tax because they don’t have a state income tax at all. These include Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, and Wyoming.
However, not all states are moving toward eliminating capital gains taxes.
For example, as Kiplinger has reported, Washington state, which does not have a traditional income tax, recently imposed a capital gains tax on high earners.
The takeaway? Stay tuned. As Missouri’s new policy takes effect, its impact on the state’s economy and budget could provide a model for others.
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