South Carolina taxes capital gains as ordinary income — up to 6% — stacked on top of federal tax, so selling appreciated real estate can cost roughly ~29.8% of the gain. A 1031 exchange into a Delaware Statutory Trust lets South Carolina investors defer that combined bill and trade active landlording for passive institutional real estate.
~29.8%Est. combined tax if you sell
6%Top state rate on gains
5.0–7.0% (illustrative)Illustrative cap rates
How South Carolina taxes a property sale
State treatment. Taxed as ordinary income — up to 6%. South Carolina deducts 44% of net long-term capital gains, cutting the effective top rate to about 3.36%.
Nonresident withholding. South Carolina may require nonresident withholding at closing; a qualifying 1031 exchange generally defers it. Confirm specifics with your closing agent.
Does South Carolina conform to Section 1031?
Yes — a qualifying exchange defers state tax alongside federal.
South Carolina conforms to IRC §1031, so a qualifying exchange defers South Carolina tax as well as federal tax. South Carolina deducts 44% of net long-term capital gains, cutting the effective top rate to about 3.36%.
Passive replacement property with a DST
Many South Carolina owners use a Delaware Statutory Trust as replacement property — institutional real estate, professionally managed, that qualifies for 1031 treatment and can absorb both the equity and the debt from the sale.
What is the capital gains tax rate in South Carolina?
South Carolina taxes capital gains as ordinary income, up to 6%, with no separate long-term rate. Combined with the federal 20% rate and the 3.8% net investment income tax, a high-bracket South Carolina seller can face roughly ~29.8% on a real estate gain. South Carolina deducts 44% of net long-term capital gains, cutting the effective top rate to about 3.36%.
Does South Carolina recognize 1031 exchanges?
Yes. South Carolina conforms to IRC §1031, so a properly structured exchange defers South Carolina tax as well as federal tax.
Why use a 1031 exchange in South Carolina?
To defer the tax on a large gain (up to about ~29.8% combined) and move from active landlording into passive, professionally managed real estate while keeping your full equity invested. These are Regulation D offerings for accredited investors.