Missouri Set for Major Capital Gains Tax Elimination and Other Changes

Key takeaways:

• Starting January 1, 2025, Missouri taxpayers can fully deduct capital gains income on their individual state taxes
• Corporations will also be able to deduct 100% of capital gains if Missouri's corporate tax rate drops to 4.5% or lower
• The bill supports agricultural succession with tax deductions for farm sales to beginning farmers and expands energy efficiency incentives for taxpayers.

Missouri House Bill 594, merged with House Bill 508, significantly overhauls Missouri’s income tax structure, highlighted by the elimination of state income tax on capital gains for individuals.

For all tax years beginning on or after January 1, 2025, Missouri taxpayers will be allowed to deduct 100% of income reported as capital gains on their federal returns when calculating their Missouri adjusted gross income.

Corporate application

A major addition in the bill is a trigger mechanism for corporations: if Missouri's top corporate income tax rate falls to 4.5 percent or lower, corporations will also be eligible to deduct 100 percent of their capital gains income starting in the following tax year. This provision ties corporate tax relief to future rate reductions, effectively offering broader capital gains tax exemption as the overall tax environment becomes more favorable.

Additional features

Beyond capital gains, the bill updates Section 143.121 of the Missouri Revised Statutes by adjusting various additions and subtractions to federal adjusted gross income. These include rules around net operating losses, depreciation, interest income, COVID-related refunds, and military pay. The bill also provides for the full deduction of qualified health insurance premiums, broadband grant funds, and various agricultural disaster relief payments.

Another major feature is aimed at supporting agricultural succession. Farm owners who sell or lease land to “beginning farmers” can deduct portions of capital gains or rental income, subject to tiered limits. The Missouri Department of Agriculture is tasked with verifying eligibility for these deductions, ensuring they target qualified participants.

Retention of energy efficiency incentives

The bill retains and expands incentives for home energy audits and energy efficiency improvements, allowing individual taxpayers to deduct associated costs, subject to annual caps. However, deductions are disallowed if other incentives (such as rebates) are received for the same activities.

The bills are currently awaiting signature from the Governor.