The Missouri Department of Revenue's FAQ page on the new capital gains subtraction gives two different start dates. Its first answer says the subtraction is "effective for the 2025 tax year." A few questions further down, the same page says it "applies to tax years beginning on or after January 1, 2026" and "you can first claim this on your 2026 individual income tax return, filed in 2027."
For a seller who closed on a Ladue home last year, that conflict has a real cost. The statute itself applies the subtraction to tax years beginning on or after January 1, 2025. DOR's own 2025 Form MO-A has a line for it, and the 2025 MO-1040 instructions define the claim as 100% of the federally reported capital gains included in federal adjusted gross income. The extension deadline for 2025 Missouri returns is October 15, 2026, three days from today. A 2025 seller who is still on extension and read only the lower half of that FAQ could leave the subtraction unclaimed.
That detail matters because of where Missouri now stands. For an individual selling a long-held, high-value home, the Missouri share of the tax on the sale has fallen to zero, and voters protected one part of that this summer. The tax that is left is federal. It is calculated against a dollar cap that has not changed since 1997, so it falls hardest on the kind of house Ladue is known for, owned for decades.
What the Missouri subtraction removes, and what it leaves on the return
Governor Mike Kehoe signed HB 594 on July 10, 2025. In an August 2025 release, the Department of Revenue called Missouri the first state to fully exempt capital gains for individual filers. The release says the subtraction covers short-term and long-term gains on assets including real estate.
The subtraction starts from the federal return. It removes what was reported federally as capital gain, and nothing else. That gives it some limits a Ladue seller can run into:
- Trusts don't qualify. DOR's FAQ says a fiduciary is not "an individual subject to tax" under the statute. A home titled in a trust at the time of sale is a separate question.
- Pass-through entities don't qualify if they are subject to the pass-through entity tax.
- Capital losses can't be subtracted. The subtraction applies only to reported gains.
- Former rental property can carry gain that isn't capital gain. IRS Publication 523 explains that gain tied to depreciation on rental or business use may be treated as ordinary income federally. A part of the gain that isn't capital gain federally doesn't fit neatly within a subtraction written for capital gain.
- Federal tax is unchanged. The subtraction lowers Missouri income tax only.
The claim is made by attaching Form MO-A to the MO-1040, entering the gain on line 18, and carrying total subtractions to line 4 of the MO-1040.
Gain excluded under the federal home-sale exclusion never shows up as federal taxable gain, so the Missouri subtraction has nothing to act on there. The subtraction only matters for gain above the federal exclusion. That is the gain long-tenured Ladue owners are most likely to have.
The tax that can't be added to a Ladue sale
A home sale can be taxed in two ways: on the gain, and on the transfer itself. Missouri's constitution blocks any new tax of the second kind. Article X, Section 25, adopted by voters on November 2, 2010, reads:
"After the effective date of this section, the state, counties, and other political subdivisions are hereby prevented from imposing any new tax, including a sales tax, on the sale or transfer of homes or any other real estate."
That protection was tested this year. In the spring the legislature sent voters Amendment 5, which would have required a phase-out of the individual income tax and allowed sales taxes to expand to make up the revenue. The certified ballot title asked whether to "curtail constitutional limits on taxing goods and services." The amendment left Section 25 in place. Its replacement section would have applied "notwithstanding any provision of this constitution to the contrary." The Missouri Independent reported that the real estate transfer protection would not have applied to a sales tax plan passed under the amendment.
The amendment did not tax home sales or commissions directly. It would have given legislators conditional authority to do so later. St. Louis Public Radio noted that Governor Kehoe had said he would never support extending sales taxes to real estate, but the amendment listed no exemptions, so lawmakers would have decided them.
On August 4, 2026, voters rejected Amendment 5, 83% to 16%, and all eight of Missouri's congressional districts voted no, according to the Missouri Independent. The Missouri Association of REALTORS paid for much of the opposition. The Independent reported its contribution at $1.9 million by early June and $2.8 million by election night. The measure is not on the November 3 ballot. Kehoe told the Independent after voting that defeat "was not the end" for the income tax project, so the broader debate is likely to return in some form. For now, the Missouri share of a Ladue sale is zero on the gain for qualifying individuals, and the state and its local governments are barred from adding any new tax on the transfer.
The number that stopped moving in 1997
That leaves the federal side. An eligible seller can exclude up to $250,000 of gain on a main home, or $500,000 on a joint return, subject to ownership and use tests. Those amounts come from a 1997 revision. According to the Congressional Research Service, that revision replaced an uncapped rollover with a fixed cap that "was not indexed for price changes."
CRS calculated what the cap would be if it had kept pace with housing prices or with general inflation from 1998 to 2025:
| Measure | Single filer | Married, joint |
|---|---|---|
| Cap in law since 1997 | $250,000 | $500,000 |
| Adjusted for median U.S. home price | ~$715,000 | ~$1,430,000 |
| Adjusted for average U.S. home price | ~$720,000 | ~$1,440,000 |
| Adjusted for GDP deflator | ~$457,000 | ~$913,000 |
CRS put the effect plainly: "With no revision and an increase in housing prices, an increasing share of gains would be subject to tax." Prices are still rising across the region. St. Louis REALTORS reported a September 2026 single-family median of $340,000 across its service area, up 7.3% from September 2025. That is a regional figure, not a Ladue one. Each year of appreciation on a long-held home adds to the gain, while the exclusion it is measured against stays the same.
Congress has bills to change this. None has moved past introduction. H.R. 1340 would double the exclusion to $500,000 and $1 million and index it to inflation. It was introduced in February 2025 and referred to Ways and Means. S. 3332, the Senate version, was introduced in December 2025 and referred to Finance. H.R. 4327 would remove the ceiling altogether and is also still at introduced status. As of October 2026, the 1997 numbers are still the law.
How the two layers combine on a long-held house
A simple example shows how the two layers interact. Take a single seller who meets the federal tests and has a $350,000 net gain, with no depreciation or other adjustments. After the $250,000 exclusion, $100,000 remains as federal gain. Before HB 594, Missouri could have taxed that $100,000 at up to the 4.7% top rate, or up to $4,700. Under the subtraction, that qualifying gain comes off the Missouri return. The federal treatment of the $100,000 is the same as before.
The arithmetic scales directly. For every dollar a long-held home's gain rises above the federal cap, Missouri's tax used to rise by up to 4.7 cents. Now it doesn't rise at all. The federal tax rises in either case. This means the variables a Ladue seller can still document and plan around are mostly federal ones: adjusted basis, records of improvements, how long the home was used as a main residence, and how the property is titled. CRS notes that taxing home gains already requires owners "to keep records for decades and to make fine distinctions between improvements and repairs." Where any of those factors apply to a specific sale, a CPA is the right person to work through them.
A few direct questions
I sold my Ladue home in 2025. Does the subtraction apply? The statute and DOR's 2025 forms apply it to tax years beginning on or after January 1, 2025, even though one answer on DOR's FAQ page says 2026. The extension deadline for 2025 returns is October 15, 2026.
Does the August vote mean a transfer tax can never come? Article X, Section 25 still bars any new tax on the sale or transfer of real estate. Changing that would take another constitutional amendment submitted to voters for approval.
Does a lower Missouri bill change the federal exclusion? No. The $250,000 and $500,000 limits and their ownership and use tests are set federally and work the same way in every state.
At Thompson & Richardson, we start every listing conversation for a long-held home by gathering the records your CPA will ask for: purchase documents, improvement history, and how the property is titled. That way the tax side of the sale moves on the same timeline as staging and photography. Request a Private Home Consultation, and we'll help you put that file together before your Ladue home goes on the market.
This article is general information, not legal, tax or financial advice. Consult a qualified professional about your situation.
