Does South Carolina recognize 1031 exchanges?
Yes. A South Carolina 1031 exchange works the same way it does federally, because South Carolina adopts the Internal Revenue Code (S.C. Code 12-6-40) and Section 1031 is not on the list of federal sections the state declines to adopt (12-6-50). Act 110 of 2026 changed South Carolina’s rates and deductions but did not change its treatment of like-kind exchanges.
The state tax deferred is smaller than in many states. With the 44% net capital gain deduction and a 2026 top rate of 5.21%, South Carolina takes about 2.92% of a long-term gain, so most of the value of an exchange is the federal deferral. For a nonresident seller, though, an exchange also changes what the buyer has to withhold at closing, which can be a much bigger number.
Federal 1031 rules that apply in South Carolina
South Carolina adds no deadlines of its own, so the federal timeline controls. You have 45 days from the sale to identify replacement property in writing and 180 days, or your return due date if earlier, to close on it. Both properties must be real property held for investment or business use, and a qualified intermediary must hold the proceeds.
To defer all the gain, buy a replacement of equal or greater value and reinvest all the net cash. Cash you keep, or debt relief you do not replace, is boot and is taxed by both the IRS and South Carolina. Our guide to 1031 exchange rules covers identification and boot in detail, and the complete 1031 exchange guide explains the full process.
What a South Carolina exchange defers
On the $1,150,000 gain in our South Carolina capital gains example, a full exchange would defer about $290,515 of federal tax and $33,552 of South Carolina tax for a resident couple.
| Tax | Rate on a large long-term gain | Deferred by a full exchange? |
|---|---|---|
| Federal long-term capital gains | 15% or 20%; up to 25% on depreciation | Yes |
| Federal net investment income tax | 3.8% | Yes |
| South Carolina income tax | About 2.92% (5.21% on the 56% left after the 44% deduction) | Yes |
| South Carolina nonresident withholding | 5.21% of gain or amount realized for 2026 | Generally not required for a tax-deferred exchange, with conditions |
South Carolina withholding at closing and how an exchange affects it
When a nonresident sells South Carolina real estate, the buyer must withhold at the state’s top individual rate for the year of sale, 5.21% for 2026, or 5% for corporations. The rate applies to the gain if the seller gives an affidavit of gain and to the amount realized if not, and it is due on Form I-290 by the 15th of the month after the sale (S.C. Code 12-8-580).
Tax-deferred transactions are excluded from that withholding, and the Department of Revenue lists like-kind exchanges deferred under Section 1031 among them. The seller’s affidavit, Form I-295, includes a statement for a simultaneous exchange in which the entire gain is deferred. If part of the gain will be recognized, the affidavit states that amount and withholding applies to it.
The catch is timing. The department says tax must be withheld where replacement property has not been identified at the time of sale, which is the usual case in a deferred exchange, since the seller has 45 days after closing to identify.
Two ways to handle withholding in a deferred exchange
South Carolina Revenue Ruling 09-13 and Revenue Advisory Bulletin 02-6 give a nonresident seller in a deferred exchange two options. Agree on one with the buyer, the closing attorney and the intermediary before closing.
- Option 1, pay it yourself: the seller pays the withholding from personal funds so the full proceeds go to the intermediary. The buyer files Form I-290 by the 15th of the month after the sale. If the exchange is completed, the seller asks for a refund with Form I-290X.
- Option 2, use the intermediary: the seller gives a Section 1031 affidavit, and the I-290 is completed as if the sale were taxable and given to the qualified intermediary with the withholding funds. The buyer’s contract with the intermediary requires it to file and pay if the exchange fails, by the 15th of the month after that becomes apparent. If the exchange qualifies, no I-290 is filed and nothing is paid. The buyer remains liable if the intermediary does not pay.
Does South Carolina have a 1031 clawback?
No. South Carolina is not one of the states with a clawback or tracking rule, which are California, Massachusetts, Montana and Oregon. An owner who sells in Charleston and buys a replacement in Tennessee or Florida files no annual South Carolina form tracking the deferred gain.
The deferred gain still carries into the replacement property’s basis for federal purposes. If you later sell the replacement in a taxable sale while living in South Carolina, the state taxes the gain as a resident’s income. Ask a CPA how a later sale would be treated if you move.
Does South Carolina regulate qualified intermediaries?
No. South Carolina is not one of the nine states with laws regulating qualified intermediaries: California, Colorado, Connecticut, Idaho, Maine, Nevada, Oregon, Virginia and Washington. A South Carolina intermediary is not required by state law to post a bond or carry a set amount of insurance.
In South Carolina the intermediary may also hold withholding funds under Option 2, so choose one that has done it before.
- Ask for proof of the intermediary’s fidelity bond and errors and omissions coverage, and the amounts.
- Ask how funds are held, who must sign to move them and whether you get statements.
- Ask whether it will sign the buyer’s Option 2 agreement and file Form I-290 if the exchange fails.
- Confirm it is not your agent from the past two years, such as your attorney, CPA, employee or broker.
Common 1031 exchange paths for South Carolina owners
Most South Carolina exchanges follow one of four paths.
South Carolina to South Carolina is common for owners trading up in Greenville, Columbia or the Charleston area, or moving from small buildings to a larger one. For residents, nonresident withholding is not an issue.
Out-of-state owners of South Carolina buildings are the sellers the withholding rules are written for. When they sell and exchange, the withholding plan is part of the closing checklist.
South Carolina to Florida, Tennessee or Texas appeals to owners planning to move to a state with no income tax on wages. There is no South Carolina tracking form.
Some owners exchange into a Delaware statutory trust for a passive replacement, which can make the 45-day identification easier.
Worked example: a nonresident’s exchange out of South Carolina
A married couple living in Charlotte owns a 24-unit building in Greenville and sells it for $2,000,000. After $100,000 of selling costs and with an adjusted basis of $750,000, the gain is $1,150,000. The $900,000 loan is paid off, the couple takes $100,000 in cash at closing, and the intermediary receives the other $900,000. They have not identified a replacement at closing.
They choose Option 2 for the exchange funds, so the I-290 for that part goes to the intermediary and is filed only if the exchange fails. For the $100,000 they take in cash, which will be recognized gain either way, the parties agree to have the buyer withhold at closing: 5.21% of $100,000, or $5,210. Revenue Ruling 09-13 has the intermediary file a modified I-290 in a partial exchange, so confirm the split with the closing attorney and the intermediary. Without the exchange and with an affidavit, withholding on the full $1,150,000 gain would have been $59,915; without any affidavit, 5.21% of the $1,900,000 amount realized, or $98,990.
They buy a $2,100,000 building in Knoxville within the deadlines. The $100,000 of boot is taxable: after the 44% deduction, $56,000 is South Carolina income, and as nonresidents with no other South Carolina income their tax is about $1,952 before any SCIAD (5.21% of $56,000, minus $966). They file a nonresident return and get back about $3,258 of the withholding. The South Carolina tax deferred is about $30,635, compared with roughly $32,586 on an outright sale.
| Item | Amount |
|---|---|
| Sale price | $2,000,000 |
| Total gain | $1,150,000 |
| Cash boot taken | $100,000 |
| Withholding at closing (5.21% of $100,000) | $5,210 |
| South Carolina tax on boot | $1,952 |
| Refund of excess withholding | $3,258 |
| South Carolina tax deferred | $30,635 |
Timeline tips for a South Carolina exchange
Settle the withholding plan before the closing date is set, since the buyer is the one liable for it and the closing attorney will want instructions.
- Sign the exchange agreement and assign the sale contract before closing.
- Give the buyer a completed Form I-295 affidavit, with the exchange statement or the recognized gain.
- If you use Option 2, get the buyer-intermediary agreement signed before closing.
- If you sell late in the year, file an extension so your return due date does not cut the 180 days short.
- Keep a separate South Carolina depreciation schedule, since the state does not follow federal bonus depreciation.
Selling a South Carolina apartment building as part of an exchange
Skyline buys apartment buildings with five or more units in South Carolina. We buy directly, close on your timeline, and can work inside 1031 deadlines. As the buyer, we handle the I-290 withholding and can agree to either of the Department of Revenue’s exchange options with your intermediary.
For the tax you would owe without an exchange, see South Carolina capital gains tax on real estate. The 1031 exchange calculator runs the federal side for your own numbers.
Selling? Spread the tax with seller-carry terms
If a large tax bill is what is keeping you from selling, an installment sale may help. When you carry part of the price as a note, the gain is generally reported as you receive payments instead of all in the year of sale. Some parts of the gain, such as certain depreciation recapture, can still be due up front, so run the numbers with your CPA first.
Skyline Capital Investments buys apartment buildings with five or more units and can offer seller-carry terms, or a delayed closing that fits your 1031 timeline. Send the address and unit count and we typically respond within 48 hours. How seller financing works · How an installment sale is taxed · Seller financing calculator.
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