1031 Exchange in Missouri: No State Capital Gains Tax, No Transfer Tax

Missouri stopped taxing individuals' capital gains in 2025, so the exchange defers federal tax

House Bill 594, signed in 2025, added RSMo 143.121.3(14): for tax years that begin on or after January 1, 2025, an individual subtracts 100% of all income reported as a capital gain for federal income tax purposes in arriving at Missouri adjusted gross income. The Department of Revenue describes Missouri as the first state to fully exempt individuals' capital gains.

For a St. Louis landlord or a Boone County farm owner that means a taxable sale in 2026 produces federal capital gains tax but, generally, no Missouri income tax on the capital-gain portion. The state's 4.7% rate has not gone away; it simply no longer reaches income that the federal return labels capital gain.

A 1031 exchange therefore earns its keep at the federal level, deferring federal capital gains tax, the tax on depreciation recapture and the net investment income tax. The overview of how the exchange works covers those federal pieces; this page covers what is left for Missouri.

Missouri starts from federal AGI, and even condemnation gain gets its own subtraction

RSMo 143.121 builds Missouri adjusted gross income by adding to and subtracting from federal adjusted gross income. Gain deferred in a qualifying exchange is not in federal AGI, so it is never in Missouri AGI; there is no Missouri election, schedule or add-back for a like-kind exchange.

Missouri goes one step further than most states on forced sales. Subsection 6 of the same statute subtracts any gain recognized under IRC section 1033 from the compulsory or involuntary conversion of property by condemnation or its imminence, so a landlord whose building is taken by eminent domain owes no Missouri tax on that gain even if the federal replacement rules are not met.

The 2025 capital-gains subtraction sits in the same list, at subsection 3(14). Reading the two together, an individual's recognized real estate gain in Missouri is now taxed by the state only to the extent federal law treats it as ordinary income.

What the Missouri subtraction covers, and what it leaves taxable

The subtraction is keyed to the federal label. Amounts reported as capital gain, long-term or short-term, come out of Missouri AGI. Amounts the federal return treats as ordinary income stay in: rent collected before closing, and any depreciation recapture that federal law taxes as ordinary income rather than as capital gain.

Two other limits matter for investors. The subtraction belongs to individuals taxed under RSMo 143.011; a C corporation gets it only from the tax year after the top individual rate falls to 4.5% or lower, which had not happened for 2025 when the rate was 4.7%. And the subtraction is a Missouri AGI modification, so a nonresident still computes tax as if a resident and prorates by the Missouri income percentage on Form MO-NRI.

Because so much depends on how the federal Form 4797 and Schedule D characterize the sale, have your CPA run the Missouri return both ways before deciding whether to exchange or sell.

Article X, Section 25: Missouri cannot tax the deed, and never has

Missouri has no state real estate transfer tax, and since November 2, 2010 it cannot adopt one: Article X, Section 25 of the Missouri Constitution, adopted by voters as Amendment 3, prevents the state, counties and other political subdivisions from imposing any new tax, including a sales tax, on the sale or transfer of homes or any other real estate.

The only cost of the deed to your buyer is the recorder's fee. That holds whether the money is wired to you or to your qualified intermediary, and it means a Missouri seller weighing a deeded replacement in Kansas City against a DST has no transfer-tax line to compare.

Property tax: 19%, 12% and 32% ratios, reset in odd-numbered years rather than on sale

Missouri assessors value real property as of January 1 of each odd-numbered year and carry that value into the even year (RSMo 137.115.1). A sale does not trigger a reassessment; the buyer of your rental inherits your assessed value until the next odd-year cycle.

The bill depends on the subclass. Residential property is assessed at 19% of true value, agricultural and horticultural property at 12% and all other real property, including commercial and industrial, at 32% (RSMo 137.115.5). A four-unit building in Springfield is residential at 19%; the retail building next door is at 32% of its value.

For farmland the 12% ratio applies to the land and improvements used for agricultural purposes, and because Missouri now exempts an individual's capital gain, a farm sale in 2026 carries federal tax but generally no state income tax on the gain.

Nonresidents: no withholding at closing, and Form MO-NRI does the proration

Missouri has no statute requiring withholding from a nonresident seller's proceeds, so the closing agent pays the full amount to you or to the intermediary. A nonresident with Missouri-source income files Form MO-1040 with Form MO-NRI, computing tax as a full-year resident on the federal figures and then applying the Missouri income percentage.

With the capital-gain subtraction in place, a nonresident's taxable Missouri income from a 2026 sale is generally limited to the ordinary-income pieces. A completed exchange removes even those gain-related items from the year, and Missouri keeps no record of deferred gain that moves to property elsewhere; there is no claw-back.