Missouri Capital Gains Tax: Essential Guide for Smart Filers

Selling an investment property, stocks, or a business stake in Missouri? Here’s the reality: Missouri capital gains tax isn’t a separate tax. Instead, capital gains are taxed as ordinary income at your state income tax rate—which currently maxes out at 5.3%. Sounds simple, right? It’s not.

Most filers miss critical deductions, timing strategies, and federal-state coordination issues that could save thousands. Whether you’re cashing out a rental property, inheriting appreciated assets, or liquidating a side business, understanding how Missouri capital gains tax works is the difference between a smart financial move and an expensive mistake.

Let’s break down what you actually need to know—no IRS jargon, just real talk about protecting your money.

How Missouri Taxes Capital Gains

Here’s where most people get confused: Missouri doesn’t have a separate capital gains tax rate. Your capital gains are added to your ordinary income and taxed at your marginal state income tax rate. That’s currently a flat 5.3% for most taxpayers (as of 2024), though Missouri has a progressive system with lower brackets for lower incomes.

Think of it this way: if you earn $60,000 in salary and sell a stock for a $20,000 gain, Missouri treats that $20,000 the same as if you earned it as wages. You’re taxed on $80,000 total income at your applicable state rate.

This is different from federal tax, where long-term capital gains get preferential rates (0%, 15%, or 20% depending on income). That’s why understanding the federal-state split matters so much.

Pro Tip: Missouri’s 5.3% state rate is actually competitive compared to neighboring states like Illinois (4.95% flat) or Kansas (5.7% top rate). However, when you add federal taxes, your total capital gains tax can easily exceed 30% on long-term gains if you’re in a higher income bracket.

The key takeaway: Missouri capital gains tax is straightforward on the surface, but the real complexity lies in federal coordination and timing strategies that can meaningfully reduce your total tax bill.

Short-Term vs. Long-Term Capital Gains

Missouri doesn’t distinguish between short-term and long-term gains at the state level—both are taxed at 5.3%. But the federal government absolutely does care, and that difference is huge.

• Short-term gains (assets held ≤ 1 year) are taxed as ordinary income federally: up to 37%
• Long-term gains (assets held > 1 year) get preferential federal rates: 0%, 15%, or 20%

Example: You sell a stock you bought 8 months ago for a $10,000 profit.

• Federal: Taxed as ordinary income (potentially 32% or 37% if you’re high-income)
• Missouri: 5.3% state tax
• Total: Up to 42.3%

Now imagine you wait 4 more months and sell the same stock:

• Federal: Long-term capital gains rate (15% or 20%)
• Missouri: Still 5.3%
• Total: 20.3% to 25.3%

That’s a potential 17% difference in tax just by waiting. This is why holding periods matter—and why Missouri’s flat treatment actually works in your favor when combined with federal long-term rates.

Warning: Don’t assume you’re automatically getting long-term treatment. The holding period starts when you acquire the asset, not when you decide to buy it. Wash-sale rules (selling at a loss and rebuying within 30 days) can reset your holding period and disqualify long-term treatment.

Federal vs. State Coordination

This is where Missouri capital gains tax planning gets real. You’re filing both a federal 1040 and a Missouri Form MO-1040. Both forms need to match on your capital gains, but the tax rates are completely different.

The IRS has detailed guidance on capital gains and losses, and Missouri follows federal rules for calculating gains and losses. Here’s the coordination:

1. Calculate your gain/loss the same way federally and at state level. Basis, holding period, and adjusted gross proceeds are identical.
2. Apply federal rates first (0%, 15%, 20% for long-term). This determines your federal tax.
3. Apply Missouri’s 5.3% rate to the same gain. This is your state tax.
4. Both taxes stack—there’s no offset or credit between them.

For example, if you’re in the 22% federal bracket and have a $50,000 long-term capital gain:

• Federal tax: $50,000 × 15% = $7,500
• Missouri tax: $50,000 × 5.3% = $2,650
• Total: $10,150 (20.3% effective rate)

One critical coordination issue: net capital loss carryforwards. If you have losses in one year, you can carry them forward indefinitely. Both federal and Missouri tax returns recognize these carryforwards, but the timing and documentation must match perfectly or you’ll face audit risk.

Use a capital gains tax calculator to model scenarios before you sell. The 15 minutes of planning can save thousands in taxes.

Deductions and Cost Basis

Your cost basis—what you originally paid for an asset—is the foundation of everything. Get this wrong, and you overpay tax on gains that don’t even exist.

• Purchase price of the asset
• Commissions and fees paid to acquire it
• Improvements (for real estate: new roof, HVAC, structural repairs—not maintenance)
• Legal fees to acquire the asset

• Maintenance and repairs
• Property taxes and insurance
• Homeowner association fees
• Utilities or landscaping

This matters because many Missouri filers confuse deductible expenses (which reduce taxable income) with basis adjustments (which reduce capital gains). A new roof on a rental property is a basis adjustment. Your mortgage interest is a deductible expense. Conflating them means you pay tax twice on the same dollar.

Pro Tip: If you inherited property in Missouri, you get a stepped-up basis to fair market value on the date of death. This is a massive tax break. If your parent bought a house for $100,000 and it’s worth $400,000 when they die, your basis is $400,000. If you sell immediately, there’s zero capital gain. Don’t miss this—it’s one of the best tax gifts the IRS allows.

For stocks and mutual funds, use the highest-cost-basis method whenever possible. If you bought 100 shares at $10 and 100 shares at $15, and you’re selling 100 shares, specify that you’re selling the $15 batch. This minimizes your gain. Document this in writing when you sell—tell your broker explicitly which shares you’re selling.

For real estate, keep records of all improvements with dates and costs. The tax amortization benefit for rental properties means you’ve been deducting depreciation each year, which reduces your basis. This is good (lowers your taxable gain), but it also means you owe depreciation recapture tax at 25% federally when you sell. Missouri doesn’t have a separate recapture tax, but it’s factored into your federal bill.

Timing Strategies to Reduce Tax Burden

Timing is everything in capital gains tax planning. A sale in December versus January can mean a completely different tax outcome.

If you have investment losses (a stock down 30%), sell them to offset capital gains from winners. This is called tax-loss harvesting. You can offset unlimited gains, and if losses exceed gains, you can deduct up to $3,000 of net losses against ordinary income. Excess losses carry forward indefinitely.

Example: You have a $40,000 gain from selling Apple stock and a $15,000 loss from a failed startup investment. Sell both. Your net gain is $25,000, and you save $5,300 in Missouri tax ($25,000 × 5.3%) versus $40,000.

Warning: The wash-sale rule. If you sell a stock at a loss and buy the same or substantially identical stock within 30 days before or after, the loss is disallowed. The IRS is strict about this. Wait 31 days or buy a different investment (e.g., a similar ETF instead of the exact same stock).

If you’re selling a large asset (rental property, business stake), consider closing the deal over two calendar years if possible. If you sell in December and January instead of all in one year, you split the gain across two years, potentially keeping yourself in a lower federal tax bracket both years.

Example: $200,000 gain in one year might push you into the 32% federal bracket. Two $100,000 gains in consecutive years might keep you in the 24% bracket both years. That’s real money saved.

If you’re charitably inclined, donate appreciated stock or real estate directly to a qualified charity. You avoid the capital gains tax entirely and get a deduction for the fair market value. This is vastly better than selling and donating cash.

Example: You own stock worth $50,000 with a $30,000 gain. Instead of selling (owing $1,590 in Missouri tax), donate it directly. You avoid the tax and get a $50,000 charitable deduction.

If you sell your primary home in Missouri, you can exclude up to $250,000 of gain (married filing jointly: $500,000) from federal tax. Missouri also recognizes this exclusion. This is one of the most valuable tax breaks available—use it.

To qualify, you must have owned and lived in the home for at least 2 of the last 5 years. If you’ve recently moved for work or are selling a vacation home, you might not qualify. Plan accordingly.

Real Estate–Specific Rules in Missouri

Real estate is the biggest capital gains trigger for most Missouri taxpayers. Here’s what’s unique about real estate taxation.

When you sell a rental property, you owe capital gains tax on the difference between your adjusted basis and the sale price. But you’ve been deducting depreciation every year, which reduces your basis. This creates two tax hits:

1. Capital gains tax on the net gain (federal + Missouri 5.3%)
2. Depreciation recapture tax at 25% federally (Missouri doesn’t have a separate recapture tax, but it’s part of your federal bill)

Example: You bought a rental house for $200,000. You’ve deducted $40,000 in depreciation over 10 years (basis now $160,000). You sell for $280,000.

• Gain: $280,000 − $160,000 = $120,000
• Depreciation recapture (25% federal): $40,000 × 25% = $10,000
• Remaining capital gain ($80,000) taxed at long-term rates
• Missouri tax on full $120,000 gain: $120,000 × 5.3% = $6,360

This is why many investors use 1031 exchanges to defer capital gains. You can exchange one investment property for another and defer all federal and Missouri capital gains tax. The rules are strict (45-day identification period, 180-day closing deadline), but the tax savings are enormous.

As mentioned, you can exclude $250,000/$500,000 of gain. Missouri doesn’t impose any additional tax on primary residence sales beyond federal. This is straightforward—just make sure you meet the 2-of-5-year ownership and use test.

Missouri has relatively low property taxes (averaging 0.49% of home value), so this doesn’t directly impact capital gains tax. But when you’re modeling whether to sell, factor in that you’ll stop paying property tax after the sale. This is a real cash benefit.

Common Mistakes Missouri Filers Make

I’ve seen these errors cost people serious money. Avoid them.

You inherit a house worth $300,000 with a stepped-up basis. You sell it two months later for $305,000. Your gain is only $5,000, not $305,000. But many heirs don’t realize they got a stepped-up basis and report the entire $305,000 as gain. That’s an extra $1,616 in Missouri tax (plus federal) on a gain that shouldn’t exist.

You sell a few shares of stock for a $800 gain. It feels small, so you don’t report it. The brokerage sends Form 1099-B to the IRS. The IRS matches it to your return. If you didn’t report it, you just triggered an IRS notice. Report all gains, no matter how small.

You buy a stock on January 15 and sell it on January 16 the next year. You think you held it for a year. Wrong. You held it for less than one year. The holding period is measured as the day after purchase to the day of sale. January 16 to January 16 is exactly one year, so you need to sell on January 17 or later to get long-term treatment.

You run a side business and have $50,000 in business income (ordinary, taxed at 5.3% in Missouri). You also sell a stock for a $20,000 long-term gain. Some filers add these together and think they owe tax at one rate. Wrong. The $50,000 is taxed at 5.3% (ordinary income). The $20,000 is also taxed at 5.3% in Missouri (but at preferential federal rates). They don’t interact in Missouri’s system, but they do federally. Make sure your tax software handles this correctly.

You optimize your federal capital gains tax by timing a sale to stay in the 15% bracket instead of 20%. Good move federally. But you didn’t realize the sale pushes you into a higher federal income tax bracket, which also affects your Medicare premiums and other phase-outs. And you’re still paying 5.3% Missouri tax regardless. Always model the full picture.

Frequently Asked Questions

Does Missouri have a capital gains tax separate from income tax?

– No. Missouri taxes capital gains as ordinary income at your state rate (5.3% for most taxpayers). There’s no separate capital gains tax. This differs from federal tax, where long-term gains get preferential rates.

What’s the Missouri capital gains tax rate?

– It’s 5.3% (as of 2024), the same as your ordinary income tax rate. Missouri has a progressive system with lower rates for lower incomes, but capital gains are added to your total income and taxed at your marginal rate.

Do I owe Missouri capital gains tax on inherited property?

– No, not if you sell it immediately. Inherited property gets a stepped-up basis to fair market value on the date of death. If you sell right away, there’s zero gain and zero tax. If you hold it and it appreciates, you owe tax on the appreciation after the date of death.

Is there a Missouri capital gains tax on primary home sales?

– No. You can exclude up to $250,000 of gain ($500,000 if married filing jointly) from federal tax, and Missouri recognizes this exclusion. As long as you owned and lived in the home for 2 of the last 5 years, you owe no federal or Missouri capital gains tax on the gain.

How do I calculate my cost basis for a rental property?

– Start with what you paid for the property. Add closing costs, legal fees, and capital improvements (new roof, HVAC, structural repairs). Subtract depreciation you’ve deducted over the years. The result is your adjusted basis. Subtract this from the sale price to get your gain.

Can I use a 1031 exchange to avoid Missouri capital gains tax?

– Yes. A 1031 exchange lets you defer both federal and Missouri capital gains tax by exchanging one investment property for another. The rules are strict, but the tax savings are substantial. You must identify a replacement property within 45 days and close within 180 days.

What’s the difference between short-term and long-term capital gains in Missouri?

– Missouri taxes both at 5.3%. But federally, short-term gains (held ≤ 1 year) are taxed as ordinary income (up to 37%), while long-term gains (held > 1 year) get preferential rates (0%, 15%, or 20%). This federal difference is huge and should drive your holding period decisions.

Do I owe Missouri capital gains tax on cryptocurrency sales?

– Yes. The IRS treats crypto as property, not currency. When you sell or trade crypto, you owe capital gains tax on the difference between your basis and the sale price. Missouri taxes this gain at 5.3% (plus federal taxes). Many filers forget to report crypto gains—don’t be one of them.

What happens if I sell a stock at a loss?

– You can use the loss to offset capital gains. If losses exceed gains, you can deduct up to $3,000 of net losses against ordinary income in a single year. Excess losses carry forward indefinitely to future years. This is called tax-loss harvesting and is a powerful strategy.

How do I report Missouri capital gains tax on my return?

– Report your gains and losses on federal Schedule D (Form 1040). Transfer your net gain to your federal 1040 and your Missouri Form MO-1040. Both forms tax the same gain, but at different rates. Make sure the gain amount matches on both returns.