Last weekend, while brewing coffee in the church fellowship hall, an elderly gentleman suddenly asked me, "I heard Missouri no longer taxes stock sales; does that mean selling a house now is free too?"

I was partly aware and partly confused about the topic, so I did some thorough research that night. To sum it up, he was correct, but only partially.

First, let's clarify the facts. The Governor of Missouri signed HB 594 on July 10, 2025, eliminating state income tax on individual capital gains.

The effective date according to the law is for tax years beginning after January 1, 2025. This means it applies to stocks sold last year. It was quite surprising that it applies retroactively to January, even though the signing was in July.

The mechanism is simple. The amount reported as capital gains on the federal tax return is deducted 100% from the Missouri state tax return.

It does not differentiate between short-term and long-term gains. This means that profits from stocks bought and sold within a year are also exempt from state tax.

To apply, you need to submit Form MO-A along with the MO-1040. The amount is taken directly from the capital gains line on the federal 1040 form.

However, there is a catch. The Missouri Department of Revenue's FAQ page contains mixed statements about the start date being 2025 and the tax year 2026.

Most interpretations of the law and explanations from law firms indicate that it applies in 2025, and there is indeed a ruling from the Department of Revenue addressing the 2025 filings. Still, it's wise to check the MO-A instructions for that year before filing.

Now, regarding the other half of the gentleman's question: the tax that has been eliminated is the Missouri state tax, not the federal tax.

The federal long-term capital gains tax rates remain at 0%, 15%, and 20% in 2026. The 0% bracket for 2026 applies to taxable income up to $49,450 for individuals and $98,900 for married couples filing jointly.

This bracket considers not only capital gains but also combines other income such as pensions, interest, and dividends. If you are retired and have lower income in a given year, it might be worth aiming for this 0% bracket.

Homes need to be considered separately. Federal law allows for an exclusion of up to $250,000 for individuals and $500,000 for couples on the profit from selling a primary residence.

The conditions are that you must have owned and lived in the home for at least two of the last five years. This limit has not been adjusted for inflation since it was set in 1997.

So, if you sell a long-held home and the profit exceeds this limit, the excess will be taxed federally. However, if that excess is classified as federal capital gains, it will be exempt from Missouri state tax.

Honestly, I was a bit surprised by this part. In the past, state tax was also applied to the excess, so this change will likely have a significant impact on those looking to downsize their homes.

On the flip side, there are definitely areas where there are no benefits. Money withdrawn from an IRA or 401(k) is considered ordinary income, not capital gains, so it is not affected by this new law.

Whether you sell stocks within the account or not, the moment you withdraw, it is counted as ordinary income. Many retirees seem to confuse this and ask, "So, is there no tax on 401(k) withdrawals?"

We also need to address losses. The Missouri Department of Revenue has stated that capital losses are not eligible for this deduction.

In simple terms, they allow for the exclusion of gains but do not allow losses to offset other income. Loss offsets follow federal rules.

So, how should you time your sales? From the perspective of Missouri state tax, there is no longer a reason to delay. You no longer need to postpone sales for years due to state tax considerations.

The real calculations need to be done for federal taxes. If you realize large gains in one year, you could exceed the 0% bracket and move into the 15% bracket, so one strategy is to split sales between December and January.

Those receiving Medicare need to consider one more thing. The income-related monthly adjustment amount (IRMAA) for Part B premiums is based on income from two years prior.

This means that if you realize significant gains this year, your premiums could increase in two years. It's not uncommon to save on taxes only to be hit with higher premiums later.

To summarize, Missouri state tax is eliminated, while federal tax remains unchanged.

For homes, the federal exclusions of $250,000 and $500,000 apply first, and only the profits exceeding that are exempt from state tax. Withdrawals from retirement accounts are not affected at all.

However, taxes can vary significantly based on income composition, residency duration, and filing status. Since it depends on individual circumstances, be sure to consult a tax professional or CPA before selling.

If it were me, I would pull my expected taxable income for the year before the end of the year and only sell as much as I can within the 0% bracket.

That day, I told the gentleman, "The state tax is indeed free, but the federal tax is not." He smiled and said, "So it's a half-price sale then." Isn't that a pretty accurate summary?