South Carolina Capital Gains Tax: 44% Deduction and Rates

The South Carolina capital gains tax works as a piece of the state income tax: gains are added to your other income and taxed at rates up to 6% for 2025, but long-term gains get a 44% deduction that cuts the effective top rate to roughly 3.36%.¹ Short-term gains get no state-level break and are taxed at your full marginal rate.

The Rate That Applies to Your Gain

South Carolina has no separate capital gains schedule. Your gain lands inside federal taxable income, flows onto the state return, and runs through the same brackets as wages or pension income.²

For tax year 2025, the brackets are:³

0% on the first roughly $3,460 of taxable income
3% on taxable income from about $3,460 to $17,330
6% on taxable income above $17,330

Anyone with a meaningful gain will hit the 6% bracket. The state’s top rate has been stepping down (7% a few years ago, 6.2% in 2024, 6% in 2025), and further reductions are possible depending on legislation in the 2025-2026 session.

Long-term versus short-term matters at the state level only because the 44% deduction is limited to long-term gains. South Carolina uses the federal holding period rule: more than one year is long-term.⁴

The 44% Long-Term Capital Gains Deduction

The state’s main tax break for investment income is a deduction equal to 44% of your net capital gain recognized during the year. Net capital gain follows the federal definition: total long-term capital gains minus net short-term capital losses. The deduction is available to individuals, estates, and trusts.¹

The math is simple. On a $100,000 net long-term gain, $44,000 is deducted and $56,000 remains taxable. At the top 6% rate, that produces $3,360 of South Carolina tax rather than $6,000, which is where the effective 3.36% top rate comes from.

A few conditions shape when the deduction actually helps:

The asset must have been held more than one year, counted federal-style from the day after acquisition to the sale date.⁴
Short-term losses reduce the long-term gain before the 44% is applied. If short-term losses erase your long-term gains, there is no deduction to take.
The deduction covers gains from stocks, bonds, real estate, business interests, and collectibles that qualify as capital assets under federal law. Inventory and property held for sale to customers in the ordinary course of business is not a capital asset and does not qualify.

How Losses Affect the Result

South Carolina conforms to the federal Internal Revenue Code for computing taxable income, so the capital loss rules you use federally carry over.⁵ Short-term losses first offset short-term gains, long-term losses first offset long-term gains, and any remainder crosses over. A net capital loss can offset up to $3,000 of ordinary income per year, with the rest carrying forward indefinitely.

Because losses reduce your net capital gain before the 44% deduction is calculated, using losses to trim gains still lowers your total state tax, even though the deduction rate itself does not change.

Selling Real Estate in South Carolina

Your Primary Residence

Because South Carolina piggybacks on the federal code, the Section 121 home-sale exclusion applies to your state return without any separate election.⁵ A single filer can exclude up to $250,000 of gain and a married couple filing jointly up to $500,000, provided you owned and lived in the home as your main residence for at least two of the five years before the sale. Any gain above the exclusion is taxable in South Carolina, and the 44% deduction reduces it further if you owned the home more than a year.

Rental and Investment Property

Vacation homes and rentals do not qualify for the Section 121 exclusion. The full gain is taxable, though the 44% long-term deduction applies if you held the property more than one year.¹

Depreciation recapture is the wrinkle that catches rental owners. The portion of the gain attributable to depreciation you previously deducted is classified separately from net capital gain under the federal definitions the state uses, so it does not clearly qualify for the 44% deduction. On a long-held rental, that separate treatment can noticeably raise the state bill.

Section 1031 Exchanges

South Carolina conforms to Section 1031, so a like-kind exchange of investment real estate defers state tax the same way it defers federal tax.⁶ The federal timelines control: 45 days to identify a replacement property and 180 days to close. The gain is deferred, not forgiven, and comes due when you eventually sell without another exchange.

If You Live Outside South Carolina

When a non-resident sells real property located in South Carolina, the buyer must withhold state income tax from the proceeds at closing. For individual, partnership, trust, or estate sellers, the withholding rate matches the state’s top individual rate for the year, which is 6% for 2025.⁷ Corporate sellers face 5%.⁸

Withholding is computed on the gain rather than the sale price, but only if you give the buyer an I-295 Seller’s Affidavit stating the expected gain. Without the affidavit, the buyer withholds against the full amount realized, which almost always ties up far more cash than necessary. Filing the affidavit is one of the easiest steps a non-resident seller can take.

The withholding is a prepayment, not the final bill. You file the SC1040 with Schedule NR, reporting only South Carolina-sourced income, and any excess over your actual liability (after the 44% deduction) comes back as a refund.⁹ For installment sales, withholding is not required if the total that would be withheld for the year is less than $350.

Estimated Payments and What Happens If You Miss Them

A large capital gain will usually trigger South Carolina’s estimated tax rules. You must make quarterly payments if you expect to owe $100 or more when you file.¹⁰ Because capital gains carry no payroll withholding, a profitable sale during the year almost always crosses that threshold.

For calendar-year filers, the quarterly due dates are April 15, June 15, September 15, and January 15 of the following year. A late-year gain often requires a larger fourth-quarter payment. You can generally avoid an underpayment penalty by paying at least 100% of your prior-year South Carolina tax, or 110% if your prior-year adjusted gross income exceeded $150,000. If your combined estimated and withheld payments for the year will exceed $15,000, the state requires electronic filing and payment.

Missing a deadline stacks two costs. A failure to file or pay on time adds a flat 10% to the tax due, and interest then accrues on the unpaid balance, compounded daily at a rate that changes quarterly.¹¹ Between the flat penalty and months of daily compounding, waiting until April to reckon with a big gain can add real money to the bill. Estimated payments during the year are the way to keep that from happening.

1
South Carolina Legislature. South Carolina Code 12-6-1150 – Net Capital Gain; Deduction From Taxable Income for Individuals, Estates, and Trusts
2
South Carolina Department of Revenue. Individual Income Tax
3
South Carolina Department of Revenue. 2025 South Carolina Individual Income Tax Tables
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South Carolina Department of Revenue. IIT FAQs – Section: Deductions and Modifications
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South Carolina Legislature. South Carolina Code of Laws – Title 12, Chapter 6, South Carolina Income Tax Act – Section: 12-6-40
6
South Carolina Department of Revenue. SC Revenue Ruling 99-2 – IRC Section 1031 Tax Deferred Exchanges
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South Carolina Department of Revenue. Nonresident Real Estate Withholding Instructions (I-290)
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South Carolina Legislature. South Carolina Code 12-8-580 – Withholding by Buyer of Real Property From Nonresident Seller
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South Carolina Department of Revenue. 2025 SC1040 Individual Income Tax Form and Instructions
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South Carolina Department of Revenue. Individual Declaration of Estimated Tax (SC1040ES)
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South Carolina Department of Revenue. Interest Rate