Could Your State Be the Next to Eliminate Capital Gains Taxes in 2025?

zero percent figure on a multicolor background

(Image credit: Getty Images)

Missouri is on the verge of making tax history. In a move that has drawn both praise and criticism, the state legislature passed a sweeping bill that would eliminate the individual capital gains tax starting with the 2025 tax year.

Once Gov. Mike Kehoe, who has reportedly expressed strong support for the idea, signs the bill, Missouri will become the first state in the nation to fully exempt profits from the sale of stocks, real estate, cryptocurrency, and other capital assets from state income tax.

Proponents argue the move will encourage investment in The Show-Me State and potentially spur job creation and economic growth.

From just $107.88 $24.99 for Kiplinger Personal Finance

Become a smarter, better informed investor. Subscribe from just ~~$107.88~~ $24.99, plus get up to 4 Special Issues

CLICK FOR FREE ISSUE

https://cdn.mos.cms.futurecdn.net/flexiimages/y99mlvgqmn1763972420.png

Sign up for Kiplinger’s Free Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

State Rep. Perkins (R-Bowling Green), who sponsored the bill, said the following in a release.

“This legislation is about creating a fairer tax system that supports growth and empowers individuals to keep more of their hard-earned money. I firmly believe this bill will have a great positive impact on our state’s economy and the financial well-being of our citizens.”

So, what does this mean for Missouri, and will other states follow? Here’s more of what you need to know.

Missouri set to become the first state to eliminate capital gains tax

Under the new bill, individuals would be able to deduct 100% of capital gains income reported on their federal tax returns when calculating their Missouri adjusted gross income for tax years beginning January 1, 2025, and beyond.

As mentioned, any profit realized from selling investments or property, whether stocks, bonds, land, or digital assets, would no longer be subject to Missouri’s state individual income tax.

The legislation also includes a trigger for corporations. If Missouri’s top corporate income tax rate drops to 4.5% or lower in the future, corporations could also deduct 100% of their capital gains income.

It’s worth noting that the bill passed the state legislature after negotiations that included additional tax breaks for older adults and disabled residents and new sales tax exemptions for diapers and feminine hygiene products (known as the "pink tax") to address equity concerns and secure broader support.

If approved, the $1.3 billion tax legislation would also offer tax deductions for farm sales to beginning farmers and expand energy efficiency incentives.

Other major tax changes in the bill include: replacing the state’s graduated income tax with a flat tax, reducing the corporate income tax rate, increasing the state standard deduction, and modifying several tax credits.

Capital gains tax rates for 2025

To appreciate the significance of Missouri’s move, it helps to review how capital gains are taxed at the federal level. Basically, the federal government distinguishes between short-term and long-term capital gains:

Short-term capital gains: Profits from assets held for one year or less are taxed as ordinary income, at rates up to 37% depending on the taxpayer’s income tax bracket.

Long-term capital gains: Profits from assets held for more than a year are taxed at preferential rates: 0%, 15%, or 20% — depending on filing status and taxable income. For most U.S. taxpayers, this rate is lower than their ordinary income tax rate, providing an incentive to hold investments longer.

For example, in 2025, a single filer with taxable income under $48,350 pays 0% on long-term capital gains; those with higher incomes pay 15% or 20%.
Some exceptions exist: collectibles may be taxed at up to 28%, and certain real estate gains at 25%.
Additionally, capital losses can offset gains, and unused losses can be carried forward to future years.

For more information, see: Capital Gains Tax Rates for 2025

Unlike the federal system, however, Missouri previously taxed all capital gains as ordinary income, with no preferential rates for long-term gains. So, the new state law represents a dramatic departure from this approach.

What about other state capital gains tax?

While Missouri is moving to eliminate its capital gains tax, other states are taking the opposite approach, imposing special capital gains taxes or surcharges that can exceed ordinary income tax rates.

For instance, as Kiplinger has reported, Washington state, which doesn’t have a general state income tax, enacted a 7% tax on the sale or exchange of long-term capital assets like stocks, bonds, and business interests in 2022.

This tax applies to capital gains above a $250,000 threshold per year, per individual or couple. For high-income investors, this means Washington’s capital gains tax rate is higher than zero and also higher than what many states charge for ordinary income.

Washington is a notable example of a state targeting capital gains while not taxing wage income. (During last November’s elections, Washington voters rejected a ballot measure that called for repealing the state’s capital gains tax.)

Meanwhile, in Minnesota, capital gains are taxed as ordinary income, with rates reaching up to 9.85% for high earners. However, as of 2025, Minnesota also imposes a 1% surtax on capital gains for high earners, pushing the effective top capital gains rate to 10.85% for those in the highest bracket.

That is notably higher than the top federal long-term capital gains rate of 20% and is among the highest state rates in the country.

The Minnesota system is progressive, so different portions of an individual’s capital gains are taxed at different rates. However, high-income filers can expect to pay more than they would on regular earned income in many other states.

Several other states, including California, Oregon, and New Jersey, also tax capital gains at high ordinary income rates.

Who benefits from scrapping taxes on capital gains?

While other states have reduced income tax rates or offered targeted tax breaks, none have fully exempted capital gains from state income tax for individuals. However, not everyone agrees with Missouri’s bold step.

Some critics warn that the change will primarily benefit the wealthiest 5% of Missourians, as they are most likely to report significant capital gains. Additionally, since data show white, higher-income households disproportionately report capital gains, there are some concerns about economic inequality and racial disparities.

And then there’s the cost. Some data show the repeal could cost Missouri’s general revenue fund over $100 million annually, with some estimates as high as $262 million or more.

Opponents fear that lost revenue could reduce funding for education, infrastructure, and public services.

Missouri capital gains tax: Bottom line

Missouri’s elimination of the state capital gains tax for individuals starting in 2025 will be a landmark policy change.

If the legislation is signed by the governor, of course, investors will keep more of their profits from asset sales. The state could potentially see economic growth, along with budget impacts and debates over tax fairness.

But if the policy ends up being popular or an economic boost, it could set a precedent and inspire similar measures in other states. So, stay tuned.