On July 10, 2025, Missouri Governor Mike Kehoe signed House Bill 594 into law, significantly changing how capital gains are treated for Missouri individual income tax purposes. Starting with tax years beginning on or after January 1, 2025, capital gains reported on a federal return will now be subtracted when computing Missouri adjusted gross income.

 

A Win for Investors and Business Owners

This new law will reduce Missouri tax liability for many residents—particularly:

• Retirees liquidating investment portfolios

• Business owners selling pass-through entities

• Investors recognizing gains on long-held assets

The timing is especially favorable for taxpayers who sold appreciated assets earlier in 2025. Although the sale may have occurred before the law’s passage, the retro-active effective date ensures those gains will likely be exempt from Missouri individual income tax.

 

Impact on Business Sales

For business owners, especially those involved with pass-through entities (e.g., partnerships, S-corporations, LLCs), this change could mean substantial tax savings:

• If the sale is structured as a stock or ownership interest sale, the resulting capital gain passes to the individual’s federal return—and is now fully excluded from Missouri income.

• Even if the sale is structured as an asset sale, and capital gains are reported via Schedule K-1 to the owners, those gains—if classified as capital for federal purposes—are now subtracted from Missouri income.

In both cases, this treatment reduces or eliminates Missouri individual income tax on many business sale transactions, including those where a significant portion of the gain is from goodwill.

Note: Depreciation recapture (often taxed as ordinary income) may still be taxable and should be reviewed separately.

 

Corporate Considerations

The law also offers a future benefit to corporate taxpayers—but only when Missouri reduces its top individual income tax rate to 4.5% or below. The current rate for 2025 is 4.7%, but existing legislation (SB3, 2022) allows for reductions based on revenue triggers. The Missouri Department of Revenue estimates the 4.5% threshold may be reached in 2029.

This future possibility means corporations evaluating large gains should monitor tax rate changes when planning for future transactions.

 

---

Key Takeaways

• Capital gains are fully excluded from Missouri individual income tax starting in 2025.

• Business sales structured properly could benefit significantly, particularly pass-through entity owners.

• Corporations should track Missouri’s individual rate reductions, which may open the door to similar savings.

 

Original Article: Missouri House of Representatives - Bill Information for HB594

---

Under U.S. Treasury regulations, any tax advice in this communication is not intended or written to be used to avoid IRS penalties. Tzinberg & Associates provides this information for general guidance only. It does not constitute tax advice, accounting services, investment advice, or professional consulting. Consult a professional adviser before making decisions or taking action, as the information is provided "as is" without any warranties regarding its completeness, accuracy, or timeliness.