Missouri Stopped Taxing Capital Gains. Why Can a Long-Held Town and Country Home Still Leave a Tax Bill?

In July 2025, Missouri became a state that does not tax an individual's capital gains. For an owner who bought in Town and Country decades ago, that sounds like the end of the tax question at closing. It isn't. Missouri's change removes only one layer of tax. The other layer is federal, and the federal home-sale exclusion is a flat dollar ceiling that does not rise with prices. Since late 1997, home prices across the St. Louis region have roughly tripled. The longer an owner has held a home, the more of the gain sits above that ceiling, and Missouri's new rule does nothing to shrink it federally.

A flat cap against rising prices

The IRS lets an eligible seller exclude up to $250,000 of gain on a main home, or $500,000 on a joint return. The general test is that the seller owned the home and lived in it for at least 24 months in the five years before the sale, as laid out in IRS Topic 701. Those limits are flat dollar amounts with no inflation adjustment built in. One of the bills in Congress, covered below, would add one.

Meanwhile, home values kept rising. The Federal Housing Finance Agency's all-transactions index for the St. Louis metro, published by the Federal Reserve Bank of St. Louis, went from 111.55 in the fourth quarter of 1997 to 323.47 in the second quarter of 2026. That is an increase of about 190%.

Here is a hypothetical using that index. Suppose a home was bought for $300,000 in late 1997 and its value moved exactly with the metro index. By mid-2026 it would be worth about $870,000. The gain of roughly $570,000 is already about $70,000 over the $500,000 joint limit, before any adjustments a tax professional would make. A surviving spouse filing single, with a $250,000 limit, would have roughly $320,000 of the same gain above the cap.

Town and Country is not a metro average. The city's own 2024 Annual Comprehensive Financial Report put its 2024 median single-family home price at $895,000. The statewide median for the same period was $215,600. When a typical home starts near that level, the dollar gain over a 20- or 30-year hold can be far larger than in the hypothetical. A fixed $500,000 exclusion covers less of it each year.

Where Missouri's subtraction actually lands

Gov. Mike Kehoe signed HB 594 on July 10, 2025, according to the governor's office. The statute lets an individual subtract "one hundred percent of all income reported as a capital gain for federal income tax purposes" for tax years beginning on or after January 1, 2025. The Missouri Department of Revenue lists real estate among the assets covered.

Missouri doesn't measure a gain on its own. It starts from the capital gain that already appears in federal adjusted gross income. On the 2025 Form MO-A, the subtraction goes on line 18, and the MO-1040 instructions tell filers to enter the positive capital gain amount reported on federal Form 1040, line 7a. So a long-held home's gain falls into three layers, and the two governments treat each one differently.

The table below summarizes the IRS Publication 523 rules and the Missouri statute linked above.

Missouri's change does its work in the middle row. The cap is fixed, so the longer a Town and Country owner holds, the more of the gain moves into that row. The state's share of the tax on it now falls away. The federal share stays.

The ownership details that change the math

Large homes on generous lots tend to bring ownership arrangements that the table doesn't show. Several of them change the answer.

The first is trusts. The Department of Revenue's FAQ states that trusts are not eligible for the individual subtraction. The same FAQ says pass-through entities subject to Missouri's pass-through entity tax are not eligible either. The statute has a separate entity provision. It applies only once Missouri's top income tax rate falls to 4.5% or lower. If a home is titled in a trust, the HB 594 benefit may not apply to that sale the way it would for an individual owner.

The second is a home office, guest suite or carriage house that was rented out. IRS Publication 523 says depreciation taken after May 6, 1997 cannot be excluded. It also says a separate business or rental portion of a property generally does not qualify for Section 121 unless it meets the residence tests on its own.

The third is paperwork. The IRS says a seller who receives Form 1099-S must report the home sale, even if the whole gain can be excluded. Reporting the sale doesn't make the gain taxable. It does mean the sale has to appear on the return even when no tax is due.

The department's own FAQ page is inconsistent on timing. One answer says the subtraction is "effective for the 2025 tax year." A few lines down, another says it first applies to tax years beginning January 1, 2026. The statute's 2025 start date and the 2025 MO-A line both point to 2025. Either way, a sale that closes this fall falls in tax year 2026.

Three proposals that could move the line

The current setup is not guaranteed to last. As of fall 2026, these are the proposals on record:

1. Missouri HB 2111 would end the individual capital gain subtraction after tax year 2026. The Missouri House bill page lists its last action as a committee referral on May 15, 2026. It shows no floor action since then.
2. H.R. 4327, the No Tax on Home Sales Act, would remove the dollar limits on the Section 121 exclusion. Congress.gov still lists it as introduced. Its latest action is a sponsorship change on January 21, 2026.
3. H.R. 1340, the More Homes on the Market Act, would raise the exclusion to $500,000 for individuals and $1 million for joint filers and adjust it for inflation each year. Its Congress.gov record shows it was referred to Ways and Means in February 2025 and has not moved since.

Amendment 5 is a different measure. It proposed a broader income tax phaseout paired with an expanded sales tax. It was not a challenge to HB 594, and St. Louis Public Radio reported that voters rejected it on August 4, 2026.

Neither federal bill to raise the cap has moved. The state benefit is current law, but a repeal bill exists. An owner who delays a sale while waiting for a federal change is also betting that the Missouri subtraction will still be in place when the home sells.

Reading this against the fall 2026 market

Taxes are only one input in a sale decision. Market conditions are the other. In September 2026, the St. Louis REALTORS service area recorded a median single-family sale price of $340,000. Homes took a median of 31 days to sell, 3,692 homes were for sale, and the area had 2.8 months of supply. The data was current as of October 5, according to the association's monthly housing report. Those figures cover the whole service area, not Town and Country. Still, 2.8 months of supply is a lean market. In that kind of market, a well-presented home in a high-value city doesn't have to wait long for a buyer, which gives a seller more say over when to close.

For a long-time owner, that matters. Gains above the exclusion now carry only federal tax, and the state benefit has a known repeal proposal pending. Knowing your own numbers before choosing a list date is worth more than it was two years ago. This post is general information, not legal, tax or financial advice. Please confirm how these rules apply to your situation with a CPA or tax attorney before you make a decision.

Quick answers

Does Missouri's change mean I owe nothing on my home sale? Not necessarily. Missouri subtracts the capital gain that appears on your federal return. Any gain above the $250,000 or $500,000 federal exclusion is still subject to federal tax.

If my whole gain fits under the exclusion, does HB 594 matter to me? Not for that sale. Excluded gain never reaches federal adjusted gross income, so there is nothing for Missouri to subtract.

My home is held in a trust. Does the subtraction apply? The Department of Revenue's FAQ says trusts are not eligible for the individual subtraction. Ask your estate attorney how title affects your sale.

If you have owned your Town and Country home long enough for these questions to matter, Christine Neskar can help you plan the sale side alongside your tax advisor. That means a pricing strategy, a presentation plan and a list date that fit the numbers your CPA gives you. Schedule a Consultation, and bring your tax questions to the first meeting so the sale plan can account for them.