1031 exchange in
Missouri.

Does Missouri follow federal 1031 rules?

Missouri fully conforms to federal Section 1031 and has no clawback. The transformative item is HB 594 (2025), which makes Missouri the first state in the country to fully exempt individual capital gains from state income tax. For an individual Missouri resident or any individual taxpayer with Missouri-source capital gains, the state tax cost of a 1031 sale (or a partial sale with boot recognition) effectively dropped from up to 4.7% in 2024 to zero in 2025 and forward.

Missouri capital gains tax structure

Missouri made the most consequential state-tax change in the country for 1031 sellers in 2025: HB 594, signed by Governor Kehoe and effective January 1, 2025, allows individuals to deduct 100% of capital gains (short- and long-term) from Missouri adjusted gross income. For tax year 2026, individual capital gains effectively carry zero Missouri state tax. The corporate version of the deduction triggers in the year after the top individual rate falls to 4.5% or lower; for 2025 the top rate was 4.7%, so corporate capital gains remain taxable until that threshold is crossed.

For tax year 2026, individual capital gains receive a 100% deduction from Missouri adjusted gross income under HB 594, signed by Governor Kehoe in 2025 and effective for tax years beginning January 1, 2025. This applies to short- and long-term gains and to any taxpayer filing as an individual (resident, non-resident, or part-year). The deduction is taken on Form MO-1040 as an adjustment to federal AGI. The general individual top rate sits at 4.7% in 2025 (declining on schedule), but capital gains are functionally exempt. Corporate capital gains are not yet eligible for the deduction — the corporate provision triggers in the tax year following the year in which the top individual rate falls to 4.5% or lower, which under current schedules is multiple years out. Missouri also imposes a 0.1% state real estate transfer fee at recording (very modest by Sun Belt standards), and Kansas City and St. Louis impose 1% city earnings taxes on residents and on non-residents working in the city — earnings taxes do not reach investment capital gains.

Federal tax treatment of a successful 1031 is deferral of capital gain and unrecaptured Section 1250 depreciation recapture (federally taxed at a maximum 25% when eventually recognized). Missouri's state treatment sits on top of those federal rates.

Common 1031 replacement strategies in Missouri

Two distinct 1031 markets. Kansas City (MO) is the logistics and distribution capital of the central US — Riverside, North Kansas City, Lenexa-adjacent (KS-side), and the Edgerton/Logistics Park KC corridor have absorbed enormous big-box industrial volume since 2018 (Amazon, Hostess, multiple 3PLs). Cap rates for credit-tenant industrial trade 5.5-6.5% on stabilized core-plus, with vacancy that has stayed remarkably low through the broader industrial slowdown. St. Louis is the eds-and-meds and defense story — BJC HealthCare, Washington University, Boeing Defense, Anheuser-Busch — with strong Class B multifamily in Clayton, Central West End, and the Delmar Loop edges. Springfield is the Ozarks medical and retail hub (CoxHealth, Mercy, Bass Pro). Columbia is University of Missouri-anchored. The KC-MO vs. KC-KS state-line dynamic matters for property tax (KS is generally lower) but with Missouri's 100% individual capital gains deduction, the tax case for staying on the MO side has flipped dramatically.

Top Missouri CRE markets for 1031 buyers

Kansas City (MO)

Logistics and distribution capital of the central US. Big-box industrial in the Logistics Park KC, Riverside, and North Kansas City submarkets trades 5.5-6.5% for stabilized credit-tenant deals; smaller-bay flex 6.0-7.0%. Class B multifamily in the urban core (Crossroads, Westport, the Plaza edges) trades 5.75-6.75%. The KC-MO vs. KC-KS state line is real — Kansas property tax is generally lower, but Missouri's new 100% individual capital gains deduction has flipped the after-tax case for individual exchangers. Underwrite both sides on every KC-area deal.

St. Louis

Eds-and-meds and defense anchored — BJC HealthCare, Washington University, Boeing Defense, Anheuser-Busch. Class B multifamily in Clayton, Central West End, and the Delmar Loop edges trades 5.75-6.75%. Industrial in the Earth City, Hazelwood, and Edwardsville (IL-side) submarkets trades 6.0-7.0% on credit-tenant flex. Downtown office is challenged in the same way as most Midwest CBDs — high vacancy, slow re-tenancy. The St. Louis MSA spans the Mississippi River into Illinois, which adds a different state-tax overlay for cross-river plays (IL has no individual capital gains deduction).

Springfield

Ozarks regional hub anchored by CoxHealth, Mercy Hospital, Bass Pro Shops headquarters, and Missouri State University. Class B multifamily trades 6.5-7.5%, NNN retail along Highway 65 and Glenstone in the 6.25-7.0% range on national credit. Medical office in the CoxHealth and Mercy networks trades tighter, 5.75-6.5% with longer master leases. Smaller market than KC or STL but credible institutional interest and reasonable exit liquidity for the size.

Columbia

University of Missouri plus MU Health Care plus state government adjacency to Jefferson City. Class B multifamily trades 6.0-7.0% with student-adjacent product trading tighter; NNN retail along Stadium and Providence in the 6.25-7.0% range. The Columbia market is small but unusually stable for its size — university enrollment, healthcare employment, and government tenancy create a low-volatility tenant mix. Limited institutional 1031 buyer depth means deal flow is broker-network-dependent.

Local counsel, recording, and filing in Missouri

Missouri title work is competitive and most metro closings are title-company-handled with attorney involvement on larger or non-standard deals. Recording is by county and Missouri's 0.1% state transfer fee plus county recording fees are modest. For Kansas City-area closings retain counsel familiar with the Missouri/Kansas state line dynamics — many institutional investors run paired entities on both sides of State Line Road and the structuring matters for both property tax and the new MO capital gains deduction. For St. Louis closings involving Tax Increment Financing (TIF), Chapter 100 bond structures, or other St. Louis-specific economic incentive overlays, use a STL-based commercial real estate attorney.

Recent developments in Missouri

HB 594, signed by Governor Mike Kehoe in 2025, is the headline event and remains under-publicized outside Missouri tax circles. Effective for tax years beginning January 1, 2025, individuals deduct 100% of federally-reported capital gains from Missouri adjusted gross income, making Missouri the first state in the country to fully exempt individual capital gains from state income tax. The corporate version of the deduction triggers in the year following the year in which the top individual rate falls to 4.5% or lower — not yet active in 2026. Missouri Department of Revenue published implementation guidance in the 2025 Tax Legislative Changes document. The political durability of HB 594 is a real question (a future legislature could repeal or restrict it), but for tax year 2026 the deduction is the law.

Common mistakes in Missouri 1031 exchanges

• Missing the HB 594 individual capital gains deduction. For tax year 2026, individuals deduct 100% of federally-reported capital gains from Missouri adjusted gross income. Out-of-state CPAs who do not actively follow Missouri legislation routinely miss the deduction in the first filing cycle and leave 4.7% of the recognized gain on the table. If your federal Form 8824 reports any recognized gain (boot, mortgage relief, partial sale), claim the deduction on Form MO-1040. The deduction is annual — there is no carryforward of unused deduction.
• Conflating individual and corporate eligibility. HB 594's 100% deduction is currently available to individuals only. Corporate taxpayers (C-corps holding Missouri real property) do not get the deduction until the tax year following the year in which the top individual rate falls to 4.5% or lower — and as of 2025 the rate is 4.7%, so the corporate trigger has not occurred. If your 1031 holding is in a C-corp wrapper, the 4% corporate rate still applies. Pass-through structures (LLC, S-corp, partnership) flow through to individual returns and qualify for the deduction.
• Underestimating KC state-line tax dynamics. KC straddles the Missouri/Kansas line and many investors run paired entities or arbitrarily place new replacement on the wrong side. With Missouri's 100% individual capital gains deduction now in force, the after-tax case for routing capital gains through MO-side property has flipped — individual exchangers should generally favor MO-side replacement for any deal where the property tax differential does not overwhelm the income-tax savings. Run both sides through a Missouri-licensed CPA before identifying replacement; the property tax math has not changed but the income tax math is dramatically different.

What to do if you're starting a Missouri-source 1031

1. Engage a Qualified Intermediary before the downleg closes. Your QI cannot be a disqualified person (attorney, CPA, or real estate agent who has represented you in the last two years).
2. Confirm state conformance and any clawback or withholding filings with a Missouri-licensed CPA.
3. Identify replacement property within 45 days in writing, delivered to your QI, under the Three-Property Rule or one of the alternative identification rules.
4. Close on replacement within 180 days of the downleg closing or by your federal tax-return due date (with extensions), whichever is earlier.
5. File Form 8824 with your federal return reporting the exchange. File any required Missouri state forms for the year, including any clawback or withholding-exemption filings.

FAQ: 1031 exchanges in Missouri

Did Missouri really eliminate state tax on capital gains?

For individuals, effectively yes — and yes, it is real. HB 594, signed by Governor Mike Kehoe in 2025 and effective for tax years beginning January 1, 2025, allows individuals to deduct 100% of federally-reported capital gains (short- and long-term) from Missouri adjusted gross income. For tax year 2026, individual capital gains carry zero Missouri state income tax. Corporate capital gains do not yet qualify — the corporate provision triggers in the year after the top individual rate falls to 4.5% or lower, which is multiple years out under current schedules.

How does HB 594 affect a 1031 exchange involving Missouri property?

Dramatically lowers the state-tax cost of any partial recognition. If you take cash boot or mortgage boot in a Missouri 1031, the recognized gain flows through your federal return to Missouri AGI and then gets fully deducted under HB 594 — effective Missouri tax of zero. For a fully-deferred federal 1031, there was already no current Missouri tax (deferred federally = deferred for Missouri); but for any partial recognition or eventual taxable disposition, an individual Missouri taxpayer now pays no state tax. This is the most significant state-level capital gains development in the country since the federal Section 1031 narrowing in 2018.

Does HB 594 apply to non-resident sellers of Missouri property?

Yes, for individual non-residents. The deduction is structured as an adjustment to Missouri AGI for individual taxpayers and applies whether the taxpayer files Form MO-1040 (resident) or MO-1040 with non-resident schedules. A California resident selling Missouri investment property in a fully-taxable sale (no 1031) reports the gain federally, allocates Missouri-source gain to MO via the non-resident schedule, and then deducts 100% — net Missouri tax of zero. The federal tax (and the seller's home state tax, including any clawback) is unchanged.

How does the KC state-line dynamic interact with HB 594?

KC straddles Missouri and Kansas. Pre-HB 594, Kansas's slightly lower property taxes and similar income tax made KC-KS the marginal preference for some institutional buyers. With Missouri's 100% individual capital gains deduction now in force, an individual exchanger generally prefers MO-side replacement because the income tax savings on eventual disposition exceed any property tax differential on most deals. Run both sides through a Missouri-licensed CPA and a Kansas-licensed property tax consultant; the answer depends on holding period, asset type, and entity structure.

Is the 100% capital gains deduction permanent?

It is current law but not constitutionally entrenched — a future Missouri legislature could repeal or restrict it through ordinary statute. The political coalition that enacted HB 594 in 2025 was a Republican legislature plus Republican governor; sustained Republican control likely keeps it in force, but a change in political control could revisit it. For 1031 exchangers planning multi-year holds, model the deduction as in force for the foreseeable near term but do not bet long-term entity structure on it surviving every future legislative session.

Are there Missouri-specific 1031 mechanics outside the income-tax change?

Few. Missouri conforms cleanly to federal Section 1031 with no clawback, no annual deferred-gain reporting, and no special form. The 0.1% state real estate transfer fee at recording is modest and applies to all transfers (no 1031 exemption — but the cost is trivial). KC and STL impose 1% city earnings taxes on residents and on non-residents working in the city, but earnings taxes do not reach investment capital gains. The 100% deduction under HB 594 is, functionally, the entire Missouri-specific 1031 story for 2026.