Missouri
Reviewed July 2026Federal §453 conformity
Yes — and then Missouri does something no other state has done: since 2025, individuals deduct 100% of their federal capital gains in computing Missouri income. The gain portion of every installment payment arrives Missouri-tax-free. But read the boundary carefully, because it follows the federal label, not the deal: the note's interest is ordinary income and stays taxable, and depreciation recapture that federal law forces into year one as ordinary income stays taxable too. In Missouri the installment structure's tax work is federal on the gain — and still very much alive on everything the deal produces that isn't capital gain.
Nonresident sourcing
Gain from Missouri property or a Missouri business is Missouri-source for sellers anywhere — but for individuals, the 100% deduction makes the sourcing question largely academic for the gain component. The interest and ordinary-income pieces of a Missouri-source stream remain taxable to nonresidents.
Withholding
Missouri imposes no closing-table withholding on nonresident real estate sellers. Pass-throughs handle nonresident owners through withholding or composite filings on what remains taxable — which, after the capital gains subtraction, is a much smaller number than before.
Selling, then moving (residency change)
The 2025 law flipped Missouri's role in relocation planning: there is no longer a state capital gains reason to leave Missouri before a sale — and arriving in Missouri mid-stream now shelters the remaining gain payments. Source states' claims on out-of-state assets survive the move in, as always.
Pass-through entity (PTE) tax election
Missouri's PTE election remains available, but the 2025 law changed its math for sale years: with the gain exempt at the individual level, electing entity-level tax on capital gain would create Missouri tax where none exists individually. The election still earns its keep on ordinary operating income. Model it component by component, not deal by deal.
Estate and IRD
Missouri has no estate or inheritance tax. At death the federal rules apply — and for heirs who are Missouri individuals, the capital gain component of inherited payments continues to arrive state-tax-free under the subtraction, while the interest remains taxable.
Planning notes
Missouri planning inverts the usual state playbook: the gain takes care of itself, so attention goes to what's left. Price the note's interest knowing it's the taxable piece; in asset deals, watch year-one recapture, which federal law makes ordinary income and Missouri therefore still taxes; keep C corporation recognition out of the structure if the exemption matters; and re-run any PTE election with the subtraction in the model.
Since 2025, Missouri individuals deduct 100% of federal capital gains — the gain component of every installment payment is Missouri-tax-free, for residents and for nonresidents' Missouri-source gain alike. The structure's state-tax role shifts to the components the exemption doesn't reach.
Only income reported as capital gain is subtracted. §453(i) depreciation recapture — forced into year one as ordinary income — and the note's interest remain fully Missouri-taxable, and C corporations don't qualify at all yet. A 'tax-free Missouri sale' still has taxable pieces; map them before quoting the client zero.
Educational information, current as of the July 2026 review. State law changes; confirm treatment with a qualified advisor before structuring a transaction.
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