South Carolina lets investors deduct 44% of net long-term capital gain before tax, and its new 2026 rate schedule tops out at 5.21%, so South Carolina capital gains tax on real estate works out to roughly 2.9% of a long-held gain. That is low for the region, but it still adds several thousand dollars to the federal bill, and a 1031 exchange South Carolina sellers complete defers both. Nonresidents need to plan for withholding at the top rate at closing, which a properly documented exchange avoids.
Reviewed by Jon Hilley, CEO & Founder of 1031 Specialists. Last reviewed September 29, 2026.
| State tax on real estate gains | 2026 schedule under Act 110: 1.99% below $30,000; 5.21% of taxable income minus $966 at $30,000 and above |
|---|---|
| Long-term capital gains treatment | 44% of net capital gain is deducted, for an effective top rate of about 2.92% |
| Nonresident withholding at closing | Individuals: the maximum individual rate on the price, or on the gain with an affidavit; corporations: 5% |
| Withholding form | Form I-290 (buyer remits); Form I-295 seller affidavit, which includes 1031 options |
| Transfer or conveyance tax (a 1031 does not defer it) | Deed recording fee of $1.85 per $500 ($1.30 state, $0.55 county), or $3.70 per $1,000 |
| Clawback on out-of-state replacement property | None |
| Conforms to Section 1031 | Yes |
| Property tax note | Rental and second homes are assessed at 6% of value, versus 4% for a legal residence |
Table of contents
- How much is capital gains tax on real estate in South Carolina?
- South Carolina tax on a $300,000 gain: worked example
- South Carolina nonresident withholding: I-290 and I-295
- South Carolina deed recording fee
- South Carolina conformity and clawback
- The 6% assessment ratio on replacement property
- Moving into or out of South Carolina
- Where South Carolina 1031 exchanges happen
- Federal 1031 rules in brief
- Common South Carolina 1031 exchange mistakes
- Start your South Carolina exchange with 1031 Specialists
- Frequently asked questions
- Sources
How much is capital gains tax on real estate in South Carolina?
South Carolina rebuilt its income tax for 2026. Act 110 (H. 4216), signed March 30, 2026, replaced three brackets with two, effective for tax years beginning after December 31, 2025:
- Taxable income under $30,000: 1.99%.
- Taxable income of $30,000 or more: 5.21% of taxable income, minus $966.
The $966 subtraction just smooths the jump between brackets; the marginal rate on each extra dollar of a large gain is 5.21%. Starting in 2027 the top rate can fall further if revenue grows at least 5% over the prior year. Act 110 also decoupled South Carolina from the federal standard and itemized deductions and created a new South Carolina Income Adjusted Deduction.
What Act 110 did not touch is the capital gains deduction. Section 12-6-1150 still lets individuals, estates and trusts deduct 44% of net capital gain, defined using the federal rules. Only 56% of a long-term gain is taxed, so 5.21% x 56% is an effective rate of about 2.92%. Short-term gains get no deduction.
Federal tax still applies in full: 0/15/20% on long-term gain (20% above $545,500 single, $613,700 joint for 2026), up to 25% on unrecaptured §1250 depreciation and 3.8% NIIT above $200,000 single or $250,000 joint.
South Carolina tax on a $300,000 gain: worked example
Assumptions: a $300,000 long-term gain on a South Carolina rental, $100,000 of it unrecaptured §1250 depreciation, joint filers in the top federal bracket and the 5.21% state bracket. Because South Carolina defines net capital gain by federal rules, the 44% deduction applies to the whole long-term gain: $300,000 x 56% = $168,000 taxable, x 5.21% = $8,752.80.
| Unrecaptured §1250 gain: 25% on $100,000 | $25,000 |
|---|---|
| Long-term capital gain: 20% on $200,000 | $40,000 |
| Net investment income tax: 3.8% on $300,000 | $11,400 |
| Federal subtotal | $76,400 |
| South Carolina tax: 5.21% x ($300,000 less 44% deduction) | $8,753 |
| Total deferred by a full 1031 exchange | $85,153 |
The state piece is modest, which is why the exchange decision in South Carolina turns mostly on the $76,400 federal bill. Estimate your recapture with the depreciation recapture calculator and weigh paying against exchanging with the capital gains vs. 1031 comparison.
South Carolina nonresident withholding: I-290 and I-295
Section 12-8-580 requires a buyer of South Carolina real property from a nonresident to withhold. For individuals, partnerships, trusts and estates, the rate equals the maximum individual income tax rate, applied to the amount realized, or to the gain if the seller provides an affidavit. For corporations it is 5%. The buyer remits on Form I-290 by the 15th day of the month after the sale.
On a $1 million sale by a nonresident individual with no affidavit, withholding at 5.21% would be $52,100, well above the likely tax after the 44% deduction. That is why Form I-295, the seller's affidavit, matters. It lists three exchange options:
- A simultaneous exchange deferring the entire gain under Section 1031.
- An exchange recognizing only part of the gain, with the recognized amount stated so withholding applies to that amount only.
- A deferred exchange through a qualified intermediary.
Revenue Ruling 09-13 explains that in a deferred exchange the intermediary can hold the withholding amount until the exchange is completed. Send the signed I-295 and our exchange documents to the closing attorney a week ahead. Foreign sellers should also read our FIRPTA guide.
South Carolina deed recording fee
South Carolina does not call it a transfer tax, but the deed recording fee works like one: $1.85 per $500 of realty value, made up of $1.30 for the state and $0.55 for the county. That is $3.70 per $1,000, so a $1 million sale carries $3,700. It is collected by the register of deeds when the deed is recorded, and the contract decides who pays. A 1031 exchange does not defer it.
There is no separate mortgage tax, and neither Charleston nor Greenville adds a city transfer tax.
South Carolina conformity and clawback
South Carolina conforms to Section 1031, so gain deferred federally is deferred for the state. There is no clawback. A South Carolina investor who exchanges a Myrtle Beach rental into a Georgia warehouse owes South Carolina nothing until a later taxable sale while still a resident, and a nonresident who exchanges out owes South Carolina nothing more on that gain.
The 6% assessment ratio on replacement property
South Carolina is known for low property taxes, but that reputation is built on owner-occupied homes. A legal residence is assessed at 4% of fair market value; rentals, second homes and other non-owner-occupied property are assessed at 6%, and do not get the owner-occupant break on school operating millage. On the same house, an investor's tax bill can run well above a homeowner's. When you underwrite a replacement property during the 45-day window, ask the county assessor for the bill at the 6% ratio, not the listing's figure, which often reflects the seller's homestead status.
Moving into or out of South Carolina
Many investors move to South Carolina from the Northeast and Midwest. Real estate is taxed where it sits: a new South Carolina resident selling a rental back in New York still owes that state's nonresident tax unless they exchange, and New York withholding applies at closing. Exchanging that property into South Carolina real estate defers the New York tax.
Leaving for Florida? If you sell South Carolina property outright after the move, South Carolina withholds and taxes the gain as a nonresident. An exchange into Florida property defers it, and no South Carolina clawback follows. Residents of North Carolina buying across the line in Fort Mill or Rock Hill should expect the same nonresident rules when they sell.
Where South Carolina 1031 exchanges happen
Charleston leads in multifamily, medical office and industrial property tied to the port. Greenville and Spartanburg have grown on manufacturing along I-85; see our page on a 1031 exchange in Spartanburg. Myrtle Beach, Hilton Head and the Grand Strand trade in vacation rentals, where the 6% assessment ratio and rental history both matter. Columbia and the Charlotte suburbs of York County round out the market.
Federal 1031 rules in brief
You have 45 days from the sale to identify replacements in writing and 180 days to close, or until your return due date if sooner. A qualified intermediary holds the proceeds. Buy equal or greater value, reinvest all net cash and replace debt to defer the full gain. Our 1031 exchange guides cover the details, and the 45-day identification validator checks your list.
Common South Carolina 1031 exchange mistakes
- Using a pre-2026 top rate. Estimates built on the old three-bracket schedule overstate the tax; 2026 sales fall under Act 110's 5.21% top rate.
- Missing the I-295 deadline. Without it, a nonresident individual faces withholding on the full price.
- Forgetting short-term gains get no deduction. A flip held under a year is taxed at the full rate and usually does not qualify for a 1031 anyway.
- Underwriting at the 4% ratio. A rental replacement property is assessed at 6%.
- Treating a beach house used mostly by family as investment property.
Start your South Carolina exchange with 1031 Specialists
We prepare your exchange agreement, work with the closing attorney on the I-295 and hold funds in a segregated account. Start your exchange or book an intro call.
Frequently asked questions
What is the South Carolina capital gains tax rate on real estate?
For 2026 the top rate is 5.21% under Act 110, but 44% of net long-term capital gain is deductible, so the effective top rate on a long-term gain is about 2.92%. Short-term gains get no deduction.
How can I avoid capital gains tax on real estate in South Carolina?
A 1031 exchange into other investment property defers both the South Carolina and federal tax. A primary residence may qualify for the Section 121 exclusion. The 44% deduction reduces the state tax on any gain you do recognize.
How much does South Carolina withhold from nonresident sellers?
Under Section 12-8-580, the buyer withholds at the maximum individual rate for individuals or 5% for corporations, applied to the price or to the gain if the seller signs Form I-295. A qualifying 1031 exchange can eliminate withholding.
Does South Carolina have a real estate transfer tax?
It has a deed recording fee of $1.85 per $500 of value, split $1.30 state and $0.55 county, or $3.70 per $1,000. A 1031 exchange does not defer it.
Why is property tax higher on South Carolina rental property?
A legal residence is assessed at 4% of value while rental and second homes are assessed at 6%, so investors pay noticeably more on the same property.
Did the 2026 tax reform change the capital gains deduction?
No. Act 110 changed the brackets and deductions but did not amend Section 12-6-1150, so the 44% net capital gain deduction remains.
Sources
- SC DOR: information about H. 4216
- SC DOR: Information Letter 26-20 on individual income tax reform
- SC General Assembly: H. 4216 (Act 110)
- SC DOR: Tax Incentives for Economic Development, Chapter 3 (44% deduction)
- SC Code Title 12 Chapter 8 (Section 12-8-580)
- SC DOR: Revenue Ruling 09-13
- SC DOR: Form I-290
- SC DOR: Form I-295
- SC DOR: deed recording fee
- SC DOR: Homeowner's Guide to Legal Residence
Related: North Carolina, Georgia, Florida, Tennessee and all 50 states.
This page explains South Carolina and federal tax rules in general terms and is not tax or legal advice. Talk to your CPA or a South Carolina attorney about your sale.
.jpg)
