South Carolina Capital Gains Tax, Explained

Most states either tax capital gains as ordinary income with no discount (Colorado, Georgia) or exempt investment income entirely (Florida, Texas). South Carolina does neither. Under Code Section 12-6-1150, individuals, estates, and trusts get a deduction from South Carolina taxable income equal to 44% of net capital gain, and "net capital gain" is defined the same way the IRS defines it: the net long-term gain, from assets held more than one year, in excess of any net short-term loss.

The practical effect: only 56 cents of every long-term dollar ever reaches your South Carolina return. Combined with the state's top rate, that works out to a maximum effective South Carolina rate on long-term gains of roughly 2.9% at the 2026 top bracket, before any federal tax is layered on.

Notice the gap in the first two rows: identical $100,000 gains, and the long-term seller pays 44% less South Carolina tax purely because of the holding period. There's no equivalent break federally beyond the standard long-term rate schedule, which makes South Carolina's holding-period line worth planning around on top of the federal one.

The 56% of a long-term gain that isn't excluded, along with the full amount of any short-term gain, is taxed at South Carolina's regular graduated rates, topping out at 5.21% for the 2026 tax year. That rate reflects a one-time statutory overhaul, not the incremental step-down South Carolina had been on before: House Bill 4216 (Act 110), signed into law on March 30, 2026, replaced the old graduated 0%/3%/6% brackets with a simplified two-bracket structure of 1.99% on taxable income under $30,000 and 5.21% at or above that threshold. The prior top rate was 7% as recently as 2021 and had eased down to 6.0% by 2025 before this law took effect.

Starting in 2027, further automatic cuts are possible if year-over-year individual income tax revenue grows at least 5%, with the law's stated glide path continuing toward 1.99% over time. If you're modeling a large sale more than a year out, it's worth checking the rate actually in effect for the year you expect to close, rather than assuming 5.21% holds indefinitely.

South Carolina's exclusion only touches the state return. Federally, long-term gains still ride the 0%, 15%, or 20% brackets, and the 3.8% net investment income tax (NIIT) kicks in above $200,000 MAGI for single filers or $250,000 for married filing jointly. Short-term gains are ordinary income federally too, taxed at your marginal bracket up to 37%.

Put both layers together: a $500,000 long-term gain taxed at the federal 15% bracket costs about $75,000 federally and, after the 44% exclusion, about $14,588 to South Carolina, a combined effective rate near 17.9%. Add the NIIT for a higher-income seller and the combined rate climbs, but South Carolina's piece of it stays comparatively light because of the exclusion.

South Carolina's coastal and low-country markets, Myrtle Beach, Hilton Head, Charleston, carry a large stock of vacation homes and short-term rentals owned by out-of-state and part-year residents. When one of those sells, the gain splits into two very different tax treatments.

Depreciation you claimed while renting the property out comes back as recapture, taxed federally at up to 25% and generally treated as ordinary-rate income rather than the kind of capital gain the South Carolina exclusion is built for. The appreciation above your original basis, the part beyond what depreciation already sheltered, is what typically qualifies as long-term capital gain eligible for the 44% break, assuming you held the property more than a year. Sizing that split before you list is the useful homework, since it changes both the federal and South Carolina numbers.

For an owner-occupied home, the federal Section 121 exclusion ($250,000 single, $500,000 married filing jointly) can wipe out the gain before any state math applies. For an investment property, a 1031 exchange defers both the federal and South Carolina tax by rolling the gain into a new property instead of recognizing it now.

South Carolina is a well-known retirement destination, and the 44% exclusion is part of why it's also a reasonable place to unwind a taxable brokerage account or sell a long-held rental after relocating. Once you're a South Carolina resident, or once the gain is South Carolina-source income, the exclusion applies the same way it would to a lifelong resident.

The wrinkle is timing. A move mid-year usually means a part-year South Carolina return, and residency determinations turn on facts like where you're registered to vote, where your driver's license is issued, and how many days you actually spend in the state. Selling a large position before establishing residency generally means the old state's rules apply instead, not South Carolina's. Anyone planning a relocation around a specific sale should map the residency timeline with a CPA before the transaction, not after.