Missouri no longer taxes most capital gains
Starting with tax year 2025, Missouri lets individuals subtract their net capital gain from Missouri adjusted gross income. For a typical resident that means a long-term or short-term gain that is already in federal AGI comes back out of the Missouri base, and the Missouri tax on the sale is zero even though the 2026 rates still run up to 4.7% on other income.
The subtraction follows the net federal figure: losses reduce it, and ordinary dividends from a fund are not capital gain even when the fund traded short-term. The Department’s May 2026 letter ruling confirms that reading. The walkthrough below shows a single resident whose Missouri tax stays at $2,170 with and without a $10,000 qualifying gain.
| Parameter | Value | Effective | Primary source |
|---|---|---|---|
| Individual capital gain subtraction | The full capital gain an individual carries into federal income, whatever the holding period | Tax years beginning on or after January 1, 2025 | RSMo 143.121.3(14)(a) |
| What the subtraction measures | Net gain on federal Form 1040 line 7a, after capital losses; ordinary-dividend fund distributions excluded | Letter ruling issued May 28, 2026 | DOR letter ruling 8397 |
| Corporate capital gains | Same 100% subtraction only from the year after the top individual rate is 4.5% or less | Contingent; not in effect for 2026 at 4.7% | RSMo 143.121.3(14)(b) |
| 2026 individual rate chart | 0% through $1,348, then 2% rising in steps to 4.7% | 2026 estimated tax year | 2026 Form MO-1040ES |
| Top rate | $263 plus 4.7% of taxable income over $9,436 | 2026 estimated tax year | 2026 Form MO-1040ES |
Missouri annual spouse columns and net-gain subtraction
Missouri’s 2026 MO-1040ES schedule reaches 4.7%, with printed whole-dollar schedule bases. Married combined returns calculate separate tax amounts for both spouses rather than applying one joint schedule to aggregate income. This calculator therefore asks for two approved annual taxable columns whenever combined status is selected, and rounds each schedule amount before adding the two.
Current section 143.121 and the agency’s May 2026 letter ruling support the individual capital-gain subtraction beginning in 2025. Some agency FAQ wording gives inconsistent starting years, so that wording is not used to delay the enacted subtraction. The qualifying measure is positive net federal capital gain reported on the applicable Form 1040 capital-gain line, not ordinary mutual-fund distributions reported as ordinary dividends.
Allocate the approved subtraction and other state adjustments to the appropriate spouse before entering taxable balances. A gain in one spouse’s column and a loss in the other must follow the actual combined net-gain allocation; a gross sale gain is insufficient. Enter complete usable nonrefundable credits in both scenarios. Unsupported additional taxes and source allocations use prepared final liabilities; future contingent rates are not assumed.
When a qualifying capital gain leaves Missouri tax unchanged
Missouri's individual subtraction is not a separate flat capital-gains rate. Section 143.121.3(14)(a) subtracts qualifying capital-gain income included in federal adjusted gross income for tax years beginning in 2025 and later. DOR letter ruling 8397, issued May 28, 2026, explains why the subtraction uses the federal net amount after losses. Ordinary mutual-fund dividends do not become qualifying capital gains just because the fund earned short-term gains.
For this hypothetical 2026 full-year single resident, an independently prepared Missouri taxable base without the sale is $50,000. The sale increases federal adjusted gross income by $10,000 of qualifying positive net capital gain, and the approved Missouri subtraction increases by the same $10,000. All other income, adjustments, deductions and usable credits stay unchanged. The approved Missouri taxable base with the sale is therefore also $50,000. These are complete annual taxable balances, not gross wages, sale proceeds or the two final tax amounts.
| Annual scenario | Taxable base | Usable nonrefundable credits | Annual state estimate |
|---|---|---|---|
| Without the sale | $50,000 | $0, confirmed | $2,170 |
| With the sale | $50,000 | $0, confirmed | $2,170 |
The 2026 MO-1040ES annual schedule gives $263 + 4.7% × ($50,000 − $9,436) = $2,169.508, rounded to $2,170 under the form's whole-dollar example convention. Equal approved bases and credits give a modeled Missouri tax change of $0. Select the approved resident annual estimate, confirm the full-year ordinary resident scope, choose Single, and enter $50,000 in both Missouri taxable-income fields and the confirmed zero credits. Complete the separate federal sale and NIIT inputs before relying on the combined result.
This example does not mean every Missouri sale produces zero incremental state tax. The sale gain is not automatically the annual net capital-gain amount: losses, other transactions, spouse allocation, eligibility, deductions or credits can change the approved annual scenarios. The worksheet does not prepare that subtraction for you. Federal income tax and NIIT can still apply; the Missouri subtraction does not establish a federal exclusion or a zero NIIT amount. Use prepared final liabilities for additional taxes, source allocations or other unsupported return effects.
Walkthrough and cited annual schedule rechecked October 3, 2026. The published estimate and dated letter ruling retain their stated scope.
Missouri preparation checklist
- Both spouse taxable columns and approved allocation of the net-gain subtraction
- Positive net Form 1040 capital gain
- Ordinary fund distributions not qualifying gain