Does South Carolina have a capital gains tax?
South Carolina capital gains tax on real estate is the state individual income tax, applied after a 44% deduction for net capital gain. Section 12-6-1150 of the South Carolina Code lets individuals, estates and trusts deduct 44% of net capital gain recognized in the state, so only 56% of a long-term gain is taxed.
For 2026 the top rate is 5.21% under Act 110 of 2026 (H.4216). Multiply 56% by 5.21% and a long-term gain is taxed at an effective state rate of about 2.92%. A seller who held the building a year or less gets no deduction and pays the full 5.21% on the gain above $30,000 of income.
South Carolina income tax rates for 2026
Act 110, signed by Governor McMaster on March 30, 2026, replaced South Carolina’s three brackets with two, starting with tax years that begin after December 31, 2025. Returns for 2026 are due April 15, 2027.
- The two formulas meet at $30,000, where both give $597, so every dollar above $30,000 is taxed at 5.21%.
- The same table applies to single and joint filers.
- From tax year 2027, the top rate must step down further if state revenue growth projections reach set thresholds.
- Act 110 decouples South Carolina from the federal standard and itemized deductions. Federal adjusted gross income is now the starting point, and a new South Carolina Income Adjusted Deduction (SCIAD) of $15,000 single, $22,500 head of household or $30,000 joint, reduced at higher incomes, takes the place of the federal standard deduction.
| South Carolina taxable income | 2026 tax |
|---|---|
| Under $30,000 | 1.99% of taxable income |
| $30,000 or more | 5.21% of taxable income, minus $966 |
The 44% capital gains deduction
The deduction equals 44% of net capital gain, and net capital gain is defined by reference to Section 1222 of the Internal Revenue Code. That means it applies to long-term gain, net of short-term losses. A building held one year or less produces short-term gain, which gets no deduction. On $100,000 of short-term gain in the 5.21% range, the state tax is $5,210; the same gain held longer than a year is taxed on $56,000, for about $2,918.
Gains from partnerships and S corporations count, so a member of an LLC that sells an apartment building gets the deduction on their share. For estates and trusts, the deduction applies only to income taxed to the estate or trust or to individual beneficiaries, not to income passed through to entities.
Act 110 did not amend Section 12-6-1150, so the 44% deduction remains in place for 2026. Corporations do not get it.
How South Carolina and federal capital gains tax stack
The federal and South Carolina taxes are separate and add together. Federal long-term gain is taxed at 0%, 15% or 20%, and Revenue Procedure 2025-32 puts the start of the 20% bracket for 2026 at $613,700 of taxable income on a joint return and $545,500 for a single filer.
The part of your gain equal to depreciation you claimed is unrecaptured Section 1250 gain, taxed federally at up to 25%. The federal 3.8% net investment income tax applies once modified adjusted gross income passes $250,000 joint or $200,000 single. South Carolina has no investment income surtax of its own.
On a typical apartment sale, then, the federal tax is several times the South Carolina tax; in the example below it is close to nine times as large. That ratio is the reverse of what sellers see in high-tax states, and it shapes how South Carolina owners think about a 1031 exchange: the federal deferral is the main prize.
South Carolina withholding when a nonresident sells
When a nonresident sells South Carolina real estate, the buyer must withhold state income tax and send it to the Department of Revenue by the 15th day of the month after the sale, on Form I-290 (S.C. Code 12-8-580). The buyer is liable for the payment, not the closing attorney or lender, unless one of them actually withholds it.
Since July 2, 2024, the rate for individuals, partnerships, trusts and estates has been tied to the state’s maximum individual income tax rate, replacing the old flat 7% (2024 Act No. 215). Form I-290 tells the buyer to use the top marginal rate for the tax year of the sale, which is 5.21% for 2026 under Act 110. Corporations are withheld at 5%.
What the rate applies to depends on paperwork. If the seller gives the buyer an affidavit stating the gain, usually on Form I-295, withholding is figured on the gain. Without one, it is figured on the full amount realized. Either way, withholding cannot exceed the seller’s net proceeds.
- Residents and deemed residents are exempt. A nonresident can be a deemed resident if, for example, it has filed South Carolina returns, is not delinquent and has done business in the state for the last two taxable years, including the year of sale.
- Tax-exempt and tax-deferred transfers are excluded, except installment sales.
- Gain excluded under Section 121 on a principal residence is not subject to withholding.
- Withholding is a prepayment. The seller files a South Carolina nonresident return and gets back any excess.
Depreciation recapture in South Carolina
South Carolina has no separate recapture rate, so the question is which part of your gain gets the 44% deduction. Unrecaptured Section 1250 gain on a building is part of federal net capital gain, so it qualifies for the deduction even though the IRS taxes it at up to 25%. Ordinary income recapture under Section 1245, which arises on personal property such as appliances or items reclassified in a cost segregation study, is not capital gain and gets no deduction.
South Carolina also does not adopt federal bonus depreciation under Section 168(k) (S.C. Code 12-6-50). If you took bonus depreciation federally, your South Carolina depreciation was slower, your South Carolina basis is higher and your state gain on sale is smaller than the federal figure. Keep the state depreciation schedule with the property records.
Worked example: selling a $2M apartment building in South Carolina
A married couple living in Greenville sells a 24-unit building for $2,000,000 and pays $100,000 in selling costs. They bought it for $1,100,000 and have claimed $350,000 of straight-line depreciation, so their adjusted basis is $750,000 and their gain is $1,150,000: $350,000 of unrecaptured Section 1250 gain and $800,000 of long-term capital gain. Their South Carolina taxable income before the sale is $250,000, and they have $250,000 of federal taxable income too. The building carries a $900,000 loan.
Federal tax: $87,500 on the Section 1250 gain at 25%, $2,055 on $13,700 at 15%, $157,260 on $786,300 at 20%, and $43,700 of NIIT, for $290,515.
South Carolina tax: the 44% deduction is $506,000, leaving $644,000 of the gain taxable. All of it falls above $30,000, so it is taxed at 5.21%, or $33,552, about 2.92% of the gain.
Combined tax is $324,067, about 28% of the gain. After paying off the loan, the couple nets $1,000,000 before tax and about $675,933 after.
| Item | Amount |
|---|---|
| Sale price | $2,000,000 |
| Total gain | $1,150,000 |
| Federal Section 1250 tax (25%) | $87,500 |
| Federal capital gains tax (15% and 20%) | $159,315 |
| Federal NIIT (3.8%) | $43,700 |
| South Carolina 44% deduction | $506,000 |
| South Carolina tax (5.21% on $644,000) | $33,552 |
| Total tax | $324,067 |
The same sale by a nonresident seller
If the same couple lived in Charlotte and owned the building in their own names, the buyer would withhold at closing. With a seller’s affidavit of gain, withholding is 5.21% of the $1,150,000 gain, or $59,915. Without an affidavit, it is 5.21% of the $1,900,000 amount realized, or $98,990.
Their actual South Carolina tax as nonresidents with no other South Carolina income would be about $32,586 before any SCIAD: 5.21% of the $644,000 taxable gain, minus $966. So even with an affidavit, about $27,329 more is withheld than they owe, and without one about $66,404 more. They get the excess back by filing a South Carolina nonresident return, but that money is tied up until the refund arrives. Give the buyer an affidavit.
How a 1031 exchange changes the South Carolina tax
A properly structured 1031 exchange defers the South Carolina tax as well as the federal tax, because South Carolina adopts the Internal Revenue Code and does not exclude Section 1031. In the example, buying a replacement of at least $1,900,000 with all $1,000,000 of net cash reinvested would defer the full $324,067.
South Carolina has no clawback, so an owner can exchange a Charleston building for one in Florida or Tennessee without a yearly state tracking form. A tax-deferred exchange is also excluded from nonresident withholding, although the Department of Revenue requires withholding if replacement property has not been identified at the time of sale. Our page on the 1031 exchange in South Carolina explains the two ways to handle withholding in a deferred exchange.
Cash you keep is boot and is taxed by both governments. The 1031 exchange calculator and the capital gains tax calculator run the federal side for your own figures.
Selling a South Carolina apartment building
Skyline buys apartment buildings with five or more units in South Carolina, from Charleston and Greenville to Columbia, Spartanburg and Myrtle Beach. We buy directly, close on your timeline, and can work inside 1031 deadlines. If you live out of state, we can handle the I-290 withholding at closing and work from your affidavit of gain.
For the carrying cost a buyer will underwrite, including what a sale does to the tax bill, see our page on the property tax rate in South Carolina. For notice and deposit rules, see South Carolina landlord-tenant law for apartment owners.
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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