South Carolina Capital Gains Tax: Rates & the 44% Deduction

South Carolina taxes capital gains as ordinary income, but long-term holdings get a substantial break: you can deduct 44% of your net long-term capital gain before the state’s rates apply. With a top marginal rate of 6% for 2025, that caps the effective South Carolina capital gains tax on long-term gains at roughly 3.36%. Short-term gains get no deduction and face the full rate.

The 44% Long-Term Deduction

The single most important provision for investors sits in Section 12-6-1150 of the state code. Individuals, estates, and trusts can subtract 44% of their net capital gain from South Carolina taxable income.¹ Only 56% of a qualifying gain ever reaches the state’s brackets.

The deduction applies broadly. Gains from stocks, bonds, real estate, business assets, and installment sales all qualify as long as the holding period exceeds one year. Capital gain distributions from mutual funds qualify too, provided the underlying holding period is met.²

“Net capital gain” carries its federal meaning: your net long-term gain reduced by any net short-term loss for the year.¹ South Carolina starts its calculation from your federal taxable income and follows the federal holding-period rules, so whatever counts as long-term on your federal Schedule D counts as long-term for the state.³

Short-Term Gains Get No Break

If you sell an asset held for one year or less, the entire gain is taxed as ordinary income at South Carolina’s regular rates. No carve-out, no reduced rate, no partial exclusion. The federal treatment is similar, but the state sting is sharper because South Carolina offers nothing to soften it.

South Carolina’s Current Income Tax Rates

South Carolina uses a graduated income tax. For tax year 2025, the structure is:⁴

0% on the first $3,200 (indexed)
3% from $3,200 to $16,040 (indexed)
6% above $16,040

Bracket thresholds are adjusted annually for inflation, so the cutoffs shift slightly each year.⁵ The 2025 tax tables reflect indexed thresholds slightly higher than the base statutory amounts.⁶

What Your Effective Rate Looks Like

Combine the 44% deduction with the top 6% rate and the math is simple. Only 56% of the gain is taxable, so the maximum effective state rate on a long-term gain is 3.36% (0.56 × 6%).

A practical example. You earn $60,000 in wages and sell stock for a $50,000 long-term gain. The 44% deduction removes $22,000, leaving $28,000 subject to state tax.¹ Because your wages already put you in the top bracket, all $28,000 of that remaining gain is taxed at 6%, producing about $1,680 in South Carolina tax on the $50,000 gain. That is 3.36% of the full gain.

Taxpayers with lower total income can end up with a lower effective rate, because the taxable portion of the gain fills the 0% and 3% brackets before hitting 6%.

What Changes for Tax Year 2026

South Carolina passed House Bill 4216 in 2025, restructuring rates for tax years beginning after 2025. The brackets collapse to two tiers: 1.99% on the first $30,000 of taxable income and 5.21% above that.⁷ The law also contains automatic triggers for further reductions in 2027 and beyond if revenue growth targets are met.

At a 5.21% top rate, the maximum effective rate on a long-term gain drops to about 2.92% after the 44% deduction. If you are planning around a 2026 sale, check the Department of Revenue site for the rate in effect at the time you file, since this area is actively changing.

Capital Losses

Because South Carolina starts from federal taxable income, federal loss rules carry straight through.³ If your losses exceed your gains in a year, you can deduct up to $3,000 of the excess against ordinary income ($1,500 if married filing separately), and any remaining losses carry forward indefinitely.

One wrinkle worth watching: the 44% deduction only applies to your net capital gain. Short-term losses that eat into long-term gains shrink the net capital gain, which shrinks the deduction. This is the same netting you already run on federal Schedule D before anything reaches the state return.

Estimated Payments After a Large Sale

Selling a highly appreciated asset mid-year can produce an unpleasant filing-season surprise. South Carolina requires estimated tax payments when you expect to owe $100 or more after withholding. Quarterly due dates track the federal schedule: April 15, June 15, September 15, and January 15 of the following year.

You can generally avoid an underpayment penalty by paying at least 100% of the prior year’s tax through withholding and estimated payments, or at least 90% of the current year’s total. If neither safe harbor is met, South Carolina charges a penalty on the underpayment for each day it remains unpaid. Selling in August with no estimated payments earlier in the year means your first payment is due by the next quarterly deadline; waiting until you file triggers the penalty even if you pay in full then.

Nonresidents Selling South Carolina Real Estate

If you live outside South Carolina and sell property here, the buyer must withhold state tax from the proceeds. For individuals, partnerships, trusts, and estates, the withholding rate matches the state’s top individual rate, applied to either the gain or the total amount realized depending on whether you provide an affidavit stating the gain.⁸

The buyer remits the withheld amount to the Department of Revenue by the 15th of the month following the sale using Form I-290.⁹ Tax-exempt and tax-deferred transactions (other than installment sales) are excluded, and gain excluded under the federal Section 121 principal-residence rule is not subject to withholding, though any gain above that exclusion is.⁸

Filing the gain affidavit is almost always worth it. Without one, the buyer withholds on the entire sale price, not just the gain. On a $400,000 sale with a $100,000 gain, that difference is significant. Whatever is withheld becomes a credit on your South Carolina nonresident return, and any overpayment is refunded.

Claiming the Deduction on the SC1040

Start with your completed federal return. Your federal taxable income and the net capital gain from Schedule D carry over to the SC1040.²

Multiply your net capital gain by 0.44 and enter the result on Line i of the SC1040, labeled “Net capital gain deduction.”² That subtraction reduces your federal taxable income to your South Carolina taxable income, which then flows through the state’s rate schedule.

Most tax software handles this automatically once the federal return is complete. If you’re preparing the return by hand, use the current year’s forms and rate tables, and double-check them if you’re filing for 2026 or later given the rate changes underway.

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. 2025 Individual Income Tax Instructions
3
South Carolina Legislature. South Carolina Code 12-6-560 – Computation of Taxable Income for Resident Individuals
4
South Carolina Department of Revenue. Individual Income Tax
5
South Carolina Legislature. South Carolina Code 12-6-510 – Tax Rates for Individuals, Estates, and Trusts
6
South Carolina Department of Revenue. 2025 South Carolina Individual Income Tax Tables
7
South Carolina Legislature. 2025-2026 Bill 4216 – Income Tax
8
South Carolina Legislature. South Carolina Code 12-8-580 – Withholding by Purchasers of Real Property from Nonresident Sellers
9
South Carolina Department of Revenue. I-290 Nonresident Real Estate Withholding