Missouri is the first state with an income tax to let individuals subtract 100% of their federally reported capital gains, so for most individual sellers the Missouri capital gains tax on real estate is now zero. A 1031 exchange in Missouri therefore defers mainly federal tax: up to $76,400 on a $300,000 gain for a high earner. The exceptions that still create Missouri tax, including C corporations and ordinary-income recapture, are what this page is about.
Reviewed by Jon Hilley, CEO & Founder of 1031 Specialists. Last reviewed September 29, 2026.
| State tax on real estate gains | $0 for individuals and pass-through owners on gain reported as capital gain federally (tax years 2025 and later) |
|---|---|
| Long-term capital gains treatment | 100% subtraction from Missouri adjusted gross income under HB 594; ordinary income still taxed at up to 4.7% in 2026 |
| Nonresident withholding at closing | None for individual sellers |
| Withholding form | None at closing; nonresidents report Missouri-source income on Form MO-1040 with Form MO-NRI |
| Transfer or conveyance tax (a 1031 does not defer it) | None. Missouri Constitution Article X, Section 25 bars new state or local taxes on real estate transfers |
| Clawback on out-of-state replacement property | None |
| Conforms to Section 1031 | Yes, Missouri starts from federal adjusted gross income |
| Local income tax | Kansas City and St. Louis levy a 1% earnings tax on earned income and business net profits; confirm with your CPA whether any rental activity is reached |
Table of contents
- How much is capital gains tax on real estate in Missouri?
- Missouri tax on a $300,000 gain: worked example
- Why Missouri investors still use 1031 exchanges
- Does Missouri withhold tax when a nonresident sells?
- Missouri transfer taxes: there are none
- Missouri conformity and clawback rules
- Moving into or out of Missouri
- Where Missouri 1031 exchanges happen
- Federal 1031 rules that apply in Missouri
- Common Missouri 1031 exchange mistakes
- Start your Missouri 1031 exchange
- Frequently asked questions
- Sources
How much is capital gains tax on real estate in Missouri?
For an individual, the answer since January 1, 2025 is nothing on the capital gain itself. House Bill 594, signed in July 2025, lets individuals deduct 100% of all income reported as a capital gain for federal purposes when they compute Missouri adjusted gross income. The Missouri Department of Revenue confirms the deduction covers short-term and long-term gains, including real estate, stocks and cryptocurrency.
Gains that flow through a partnership, LLC taxed as a partnership, or S corporation arrive on the owner's K-1 as capital gain and are subtracted on the owner's Form MO-1040 the same way. That covers most of the ways investors hold rental property in Missouri.
What remains taxable at Missouri's graduated rates, which top out at 4.7% for 2026:
- Ordinary income on the sale. Section 1245 recapture on personal property and land improvements, which is common after a cost segregation study, is ordinary income on federal Form 4797, not capital gain, so it is generally outside the subtraction.
- Rents and other operating income from the property up to the date of sale.
- C corporations. Their parallel 100% deduction only switches on once Missouri's top individual rate falls to 4.5% or lower. The rate is still 4.7% in 2026, so a C corporation selling Missouri real estate still owes Missouri corporate income tax on the gain.
Unrecaptured Section 1250 gain, the depreciation portion taxed federally at up to 25%, is still capital gain on the federal return, which is why it falls inside the Missouri subtraction. If you want to size that federal piece before you decide, run the numbers in our depreciation recapture calculator.
Missouri tax on a $300,000 gain: worked example
Assumptions: a long-term gain of $300,000 on a Missouri rental held by an individual, $100,000 of it unrecaptured Section 1250 depreciation, the seller filing jointly and already in the top federal bracket and Missouri's top 4.7% bracket, no cost segregation.
| Line | Math | Tax |
|---|---|---|
| Unrecaptured §1250 gain (depreciation) | 25% × $100,000 | $25,000 |
| Remaining long-term gain | 20% × $200,000 | $40,000 |
| Net investment income tax | 3.8% × $300,000 | $11,400 |
| Federal subtotal | $76,400 | |
| Missouri income tax | $300,000 capital gain − $300,000 HB 594 subtraction = $0 × 4.7% | $0 |
| Total tax a full 1031 exchange defers | $76,400 |
Before 2025 the same sale would have added roughly $14,100 of Missouri tax (4.7% of $300,000). Today the state line is zero, so the decision to exchange rests on the $76,400 federal bill. If $40,000 of the gain had been Section 1245 recapture from a cost segregation study, that $40,000 would be ordinary income taxed federally at the seller's ordinary rate and by Missouri at 4.7%, about $1,880 of state tax that a 1031 exchange would also defer. Compare selling outright with exchanging on our capital gains vs. 1031 exchange comparison.
Why Missouri investors still use 1031 exchanges
Some sellers read about the new deduction and assume the 1031 exchange is dead in Missouri. The federal numbers say otherwise. A $76,400 bill on a $300,000 gain is roughly a quarter of the profit, and a full exchange keeps all of it working in the next property. Three reasons it still pays here:
- The federal tax never went away. Long-term gains are taxed at 0%, 15% or 20% (20% above $613,700 of taxable income for joint filers in 2026, $545,500 single), plus the 3.8% net investment income tax above $250,000 of joint MAGI ($200,000 single) and up to 25% on unrecaptured depreciation.
- Deferral can become permanent. Heirs generally receive a stepped-up basis, so exchanging until death can erase the deferred federal gain. See our guide to swap till you drop.
- The law can change. A future legislature could narrow the subtraction. Gain you deferred federally is still gain; if Missouri taxes capital gains again when you finally sell, the state portion would come due then.
Where the deduction does change strategy is partial exchanges. Cash you take out as boot is now taxed only federally for an individual Missouri seller, so a partial exchange costs less than it did. Model it with the partial 1031 boot calculator.
Does Missouri withhold tax when a nonresident sells?
No. Missouri has no withholding requirement for individual sellers of real estate, resident or not, so the title company releases your proceeds, or sends them to your qualified intermediary in an exchange, without a state holdback. There is no Missouri exemption certificate to file before closing.
Nonresidents still report Missouri-source income on Form MO-1040 with Form MO-NRI. Because the HB 594 subtraction applies to capital gain included in federal adjusted gross income, a nonresident individual's gain on Missouri property is also generally subtracted. Recapture taxed as ordinary income and rents remain Missouri-source income.
Foreign sellers are a separate matter. Federal FIRPTA withholding of up to 15% of the sale price still applies to foreign persons selling US real estate; see our FIRPTA guide for how a 1031 can reduce it.
Missouri transfer taxes: there are none
Missouri is one of the few states with no real estate transfer tax at any level. Voters added Article X, Section 25 to the state constitution in November 2010, and since December 2, 2010 the state, counties and cities have been prohibited from imposing any new tax on the sale or transfer of homes or other real estate. Your closing costs are limited to recording fees, title insurance and settlement charges.
This matters in an exchange because transfer taxes are one cost a 1031 never defers. On a $2 million sale in Chicago, city and state transfer taxes can exceed $20,000. In Missouri the figure is zero on both the relinquished sale and the replacement purchase.
Missouri conformity and clawback rules
Missouri computes income starting from federal adjusted gross income, so a valid Section 1031 exchange flows through automatically. Missouri has no clawback: if you exchange Missouri property into Texas or Florida, Missouri does not track the deferred gain or require an annual filing like California's FTB 3840. Given the capital gains subtraction, there would be little for it to claw back from an individual.
The reverse is worth watching. Replacement property in another state becomes that state's source income. If you later sell a Kansas replacement property, Kansas taxes the gain at up to 5.58% even if you still live in Missouri.
Moving into or out of Missouri
Moving in. If you exchange property from a high-tax state into Missouri, watch what follows you. California tracks gain deferred from California property through Form FTB 3840 and taxes it when you sell the replacement, even after you move. Oregon has a similar rule. Missouri's subtraction does not override another state's claim on gain it sourced.
Moving out. Leaving Missouri usually means moving to a state that does tax capital gains. If you plan to relocate to Kansas or Illinois, a sale completed while you are still a Missouri resident is taxed only federally, while the same sale after the move would be taxed by your new state. Timing the sale before you change domicile can be worth more than an exchange for the state portion. Moving to Texas or Florida adds no state tax either way.
Exchanging out of state. Missouri investors who buy replacement property elsewhere trade a state-tax-free future sale for one that the new state can tax. That is not a reason to stay local, but it belongs in the underwriting.
Where Missouri 1031 exchanges happen
Exchange activity in Missouri centers on the two big metros and a handful of college and regional hubs:
- Kansas City. Industrial and distribution space along I-35 and I-70, multifamily in the Northland and Lee's Summit, and constant cross-border trades with Johnson County, Kansas. Remember the 1% earnings tax for KCMO residents and businesses.
- St. Louis. Older multifamily in the city and inner-ring suburbs, net-leased retail in St. Charles County, and medical office near the major hospital systems.
- Springfield and Branson. Small multifamily, short-term rentals and hospitality properties tied to tourism.
- Columbia. Student housing and small multifamily near the University of Missouri.
- Farmland. Row-crop and pasture ground in north and west Missouri trades through exchanges regularly, often into other farmland or into net-leased commercial property.
Passive investors selling a Missouri rental often look at Delaware statutory trusts to exit active management while keeping the deferral.
Federal 1031 rules that apply in Missouri
You have 45 days from the sale to identify replacement property in writing and 180 days to close. A qualified intermediary must hold the sale proceeds from closing to purchase; touching the money ends the exchange. To defer everything, buy property of equal or greater value and replace the debt you paid off. Check your identification list with our 45-day identification validator, estimate deferral with the 1031 exchange calculator, and find the details in our 1031 exchange guides.
Common Missouri 1031 exchange mistakes
- Skipping the exchange because "Missouri has no capital gains tax." The state deduction does nothing to the federal $76,400 on a $300,000 gain.
- Holding property in a C corporation. Corporations do not get the subtraction until the top individual rate reaches 4.5%. A corporate seller still needs the exchange for Missouri purposes.
- Forgetting cost segregation recapture. Section 1245 recapture is ordinary income and generally still taxed by Missouri. Ask your CPA to split the gain before you decide how much boot to take.
- Buying a replacement across the state line without modeling the next sale. A Johnson County property will be taxed by Kansas when you sell it, whatever your residence.
- Moving before selling. Relocating to a taxing state and then selling can turn a Missouri-tax-free gain into a taxable one.
- Relying on 2024 advice. Anything written before July 2025 describes a Missouri tax on your gain that no longer applies to individuals.
Start your Missouri 1031 exchange
Open your exchange before the sale closes: once you receive the proceeds, it is too late. Start your exchange online and we will prepare the exchange agreement and assignment documents for your title company, or book a free intro call to walk through your Missouri sale, the federal tax at stake and your replacement options. You can also call us at (631) 438-1031.
Frequently asked questions
How can I avoid capital gains tax on real estate in Missouri?
If you are an individual or own through a partnership or S corporation, Missouri already exempts the capital gain through the 100% HB 594 subtraction for tax years 2025 and later. The federal tax, up to 20% plus 3.8% net investment income tax and 25% on depreciation, is what remains, and a properly structured 1031 exchange defers all of it.
Does Missouri still tax capital gains in 2026?
Not for individuals on income reported as capital gain federally. C corporations still pay Missouri tax on gains until the top individual rate falls to 4.5% or lower, and ordinary income such as Section 1245 recapture is still taxed at up to 4.7%.
Is a 1031 exchange worth it in Missouri now?
Usually yes for larger gains. On a $300,000 gain a high-income seller owes about $76,400 in federal tax, and an exchange defers all of it. Missouri's deduction only removes the state layer.
Does Missouri have a real estate transfer tax?
No. The Missouri Constitution, Article X, Section 25, has barred the state and local governments from imposing new taxes on real estate transfers since December 2010.
Does Missouri withhold state tax from a nonresident seller at closing?
No. Missouri has no real estate withholding requirement for individual sellers. Nonresidents file Form MO-1040 with Form MO-NRI to report Missouri-source income.
Do nonresidents get the Missouri capital gains deduction?
Generally yes. The subtraction applies to capital gain included in federal adjusted gross income, so a nonresident individual's gain on Missouri property is subtracted in computing Missouri income. Confirm the treatment of any recapture with your CPA.
Sources
- Missouri Department of Revenue: capital gains deduction notice
- Missouri House: HB 594 bill summary
- Missouri Department of Revenue: 2026 withholding tax formula (4.7% top rate)
- Missouri Revisor of Statutes: Constitution Article X, Section 25
- City of Kansas City: earnings tax FAQs
Related: Kansas, Illinois, Iowa, Arkansas, and all 50 states.
This page explains general rules and is not tax or legal advice. Missouri's capital gains subtraction is new, so confirm how it applies to your sale with a CPA or tax attorney before you act.
