South Carolina Inheritance Tax

Does South Carolina Have An Inheritance Tax?

After a loved one passes, questions about inherited assets often arise. Whether it’s cash, property, or other valuables, understanding if you’ll need to pay taxes on what you inherit can help you avoid unwanted surprises.

 

Understanding South Carolina’s inheritance tax laws is imperative for financial planning. Tax laws vary by state, and South Carolina has its own specific approach. This guide will clarify how inheritance taxes work, explain South Carolina’s position, and highlight how to handle any potential taxes coming your way.

What Is the Difference Between Inheritance Tax and Estate Tax?

Though often confused, an inheritance tax is not the same as an estate tax. An inheritance tax applies to the individual receiving assets after someone passes away, while an estate tax is charged against the estate’s total value before it is distributed to heirs. These differences determine how each tax works and who is responsible for paying it.

 

Inheritance taxes vary by state and often depend on the recipient’s relationship to the deceased. For instance, a surviving spouse or child might pay no tax or a reduced amount, while distant relatives or unrelated heirs are typically taxed at higher rates. Estate taxes, however, apply to the estate as a whole and are calculated regardless of the heirs’ relationships to the decedent.

 

There is no federal inheritance tax, but the federal estate tax applies to estates surpassing a certain value level. Those under the limit pass to heirs without facing federal estate taxes. It’s also important to recognize that there may also be state-level estate taxes depending on where you live. 

Does South Carolina Have an Inheritance Tax?

South Carolina does not impose an inheritance tax, which is excellent news for residents inheriting property or money. Inheritors do not have to worry about paying additional state taxes on assets passed down from someone who lived and passed away in South Carolina.

 

That said, the following states do levy their own inheritance taxes:1  

 

  • Pennsylvania
  • Kentucky
  • New Jersey
  • Maryland
  • Nebraska

If a South Carolina resident inherits real estate or other assets located in these states, the inheritance tax laws of that state might still apply. For example, someone inheriting a family home in Maryland could face an inheritance tax even though they live in South Carolina. Consulting a professional familiar with state and federal tax laws can help clarify obligations and identify potential tax savings when receiving assets from out-of-state.

 

Please Note: Iowa used to levy an inheritance tax. However, inheritance taxes will no longer be imposed if the deceased party passes away on or after January 1, 2025.2  

Does South Carolina Have an Estate Tax?

South Carolina does not charge an estate tax. This means no matter how large an estate may be, it isn’t subject to state taxation after someone passes away. This is a significant benefit for families who want to pass on wealth without additional state-level tax complications.

 

However, federal estate tax laws still apply in some instances. For 2025, estates valued at over $13.99 million are subject to the federal estate tax, with tax rates reaching as high as 40% on amounts that exceed the exemption.3

 

It’s also worth considering the tax laws of other states if the deceased owned property elsewhere. Certain states impose estate taxes, which might create unexpected obligations for South Carolina residents who inherit assets outside the state. 

 

The following places do levy their own estate taxes:4

 

  • District of Columbia
  • Hawaii 
  • Illinois
  • Connecticut
  • Massachusetts
  • Washington
  • Vermont
  • New York
  • Minnesota
  • Oregon
  • Rhode Island
  • Maryland
  • Maine

Please Note: At the time of this publication, The Tax Cuts and Jobs Act (TCJA) is scheduled to expire after 2025. This means, that beginning in 2026, the federal estate tax exemption will go back to its pre-TCJA levels with adjustments made for inflation. This is expected to be roughly $7 million for individuals and $14 million for married couples.5 However, it is possible that future legislation may prevent or alter this reversion.

How to Minimize Federal Estate Tax Liability in South Carolina

Even though South Carolina doesn’t impose an estate tax, federal taxes may still be imposed on larger estates. With careful planning, you can reduce the taxable value of your estate and pass more wealth to your heirs. Here are several effective approaches:

 

Annual Gift Tax Exclusions: People can use their annual gift tax exclusion to give up to a certain amount to each recipient annually. Using this technique, you can gradually reduce the value of your taxable estate while transferring assets to those you wish to support.

 

Trust Structures: An irrevocable trust can help reduce your taxable estate’s size. Once assets are transferred into this type of trust, they’re no longer counted as part of your estate, offering a potential tax advantage by lowering your overall estate value.

 

Charitable Contributions: Contributing to charities or donor-advised funds is a practical way to support important causes while also shrinking your taxable estate. This strategy can be particularly valuable for those with significant wealth, potentially leading to notable reductions in federal estate taxes.

 

Life Insurance Strategies: Placing a life insurance policy into an irrevocable life insurance trust can help provide liquidity for covering estate taxes without increasing the taxable value of your estate. This strategy can be particularly useful for preserving assets like property or family businesses.

 

Direct Expense Payments: Instead of gifting cash, you can pay for educational tuition or medical expenses directly to the service provider. These payments do not count toward the annual gift tax limit, allowing you to reduce your estate’s taxable value while offering financial support to loved ones.

 

Please Note: In 2025, the IRS has established the annual gift tax exclusion amount as $19,000 per individual.6

Tailored Estate Plans for Complex Family Structures 

Families with unique circumstances or financial situations often benefit from estate plans specifically crafted to meet their needs. Thoughtful planning can help protect assets, minimize misunderstandings, and align the plan with your objectives. 

 

Below are considerations for families with more intricate planning needs:

 

Managing Co-Owned Property and Shared Assets: Inherited homes or vacation properties shared among family members can often lead to disagreements about upkeep, access, or expenses. To prevent conflict, consider placing shared properties in a family trust or forming a limited liability company (LLC). These formal arrangements create clear guidelines about responsibilities, costs, and usage, reducing the chance of future disputes.

 

Addressing Blended Families and Multi-Generational Concerns: Families with stepchildren or second marriages may need to consider how to provide for a surviving spouse while protecting assets for children from previous relationships. A qualified terminable interest property (QTIP) trust can meet these goals by allocating resources to a spouse while preserving assets for heirs. Additionally, multi-generational trusts offer a way to pass down wealth securely, shielding it from risks like creditors or mismanagement.

 

Planning Small Business Succession: Transferring ownership of a closely held business can be a complex process. Tools such as family-limited partnerships (FLPs) or buy-sell agreements help create a structured plan for transitioning leadership and ownership. These tools also allow families to reduce tax liabilities while maintaining clarity about who will manage or inherit the business.

 

Specialized Trusts for Specific Needs: Certain trust structures can provide solutions for unique family circumstances. A special needs trust, for example, allows financial support for a family member with disabilities without interfering with their eligibility for government assistance programs. A generation-skipping trust (GST) can transfer wealth directly to grandchildren, bypassing certain tax implications and preserving resources for future generations.

 

Avoiding Conflicts Over Unequal Inheritances: Significant or uneven distribution of assets can sometimes result in disputes among beneficiaries. Transparent communication and thoughtful planning can help mitigate these issues. Using tools like trusts to structure distributions and discussing intentions with family members can reduce misunderstandings and foster harmony among heirs.

Inherited Property in South Carolina: Capital Gains and Other Tax Implications

When you inherit property in South Carolina, there are tax considerations to keep in mind, even though the state has no inheritance tax. One of the most advantageous tax rules for heirs is the stepped-up basis, which can help reduce capital gains taxes on inherited assets.

 

The stepped-up basis adjusts the property’s value to its fair market price at the time the original owner passed away. For instance, if you inherit a home currently worth $450,000 that was purchased for $200,000, the tax basis is adjusted to $450,000. If you sell the property shortly after inheriting it, you will only owe capital gains tax on any increase above $450,000, saving a significant amount in taxes.

 

Income generated from inherited property, like rental payments, must be reported on tax returns. In South Carolina, where state income taxes are collected, rental income is subject to both federal and state taxation, making proper reporting a key part of managing inherited assets.

 

Please Note: The timing of selling an inherited property plays an important role in determining capital gains taxes. Selling within a year means the gains are taxed at short-term rates, which match federal ordinary income tax rates and can go as high as 37%. However, holding the property for over a year qualifies the sale for long-term capital gains tax rates, which are capped at 20% federally.7 In South Carolina, capital gains are taxed as ordinary income up to 6.2%.8

Steps to Take When Inheriting Assets in South Carolina

Managing inherited property or other valuable possessions can involve multiple layers of decision-making. Proper planning and staying organized are key to avoiding unnecessary complications and handling any tax-related concerns effectively. 

 

Below are actionable steps to guide you through the process:

 

Seek Professional Tax Advice Early: After receiving your inheritance, reach out to a tax expert to clarify any obligations you might face, whether now or in the future. This could include responsibilities like capital gains or income taxes. Early insight from a professional allows you to prepare and make informed decisions about the best way to handle your inheritance.

 

Arrange for a Property Valuation: An appraisal is beneficial when dealing with real estate or other high-value assets. It provides a clear picture of the market value, which can be helpful when deciding whether to sell, keep, or transfer the property. Accurate valuation figures are also often required when filing taxes.

 

Weigh Financial Options Carefully: Think through the possibilities for how to manage the assets you’ve received. For instance, selling may provide immediate funds, while renting could generate steady income. Keeping the property might serve long-term goals. Speaking with a financial professional can help clarify the pros and cons of each option, helping you choose the one that aligns best with your financial plans.

 

Understand Real Estate Maintenance Costs: When inheriting a home or other property, you may need to account for ongoing expenses like taxes, insurance, and repairs. Properties in disrepair or far from where you live may be more challenging to manage, making selling or renting alternatives worth considering.

 

Review and Update Beneficiary Information: Inherited accounts may include outdated or incorrect beneficiary designations. Double-check these records to avoid confusion or disputes and to ensure the assets go directly to the intended recipients.

 

Consider Setting Up or Revising a Trust: If you intend to hold onto inherited assets for the long term, a trust can be a helpful tool. It offers a structured way to manage these resources, provides a clear distribution plan for future heirs, and may help minimize tax burdens.

 

Keep Documentation in Order: Gather all relevant paperwork, including property deeds, appraisals, and tax forms, and store them securely. These records will simplify the process of handling tax requirements or making decisions about the assets. Proper documentation is especially important if you plan to give part of your inheritance or make use of tax exemptions.

 

Please Note: Inheriting assets can bring unique challenges, but support is available. Our team offers personalized guidance to help you navigate tax concerns, assess financial choices, and coordinate with trusted professionals like attorneys or accountants. If you require additional expertise, we can connect you with our network of vetted specialists, ensuring your inheritance is managed effectively from start to finish.

We Can Help You Secure Your Legacy

Addressing inheritance taxes and protecting your wealth requires thoughtful preparation to ensure your financial legacy benefits the people and causes you care about most. Our team is here to offer personalized guidance, helping South Carolina residents take full advantage of the state’s inheritance-friendly tax environment while navigating any federal requirements.

 

If you have assets across multiple states or complex needs like trusts, family partnerships, or gifting strategies, we can help you evaluate the best options for your situation. For families with unique dynamics, including multi-generational households or blended families, we’ll tailor solutions that align with your goals and reduce potential tax liabilities for your heirs.

 

We’re also available to work alongside your accountant or legal team to ensure every part of your plan works seamlessly. If you need additional resources, we can recommend trusted professionals from our network to address any legal or tax-specific concerns.

 

From clarifying the benefits of tools like trusts to navigating federal exemptions and lifetime exclusions, we aim to make complex tax rules more manageable. Schedule a complimentary consultation to explore strategies customized for your situation. Together, we’ll craft a plan that preserves your wealth, honors your intentions, and supports future generations.

 

Sources:

 

  1. https://www.nolo.com/legal-encyclopedia/state-inheritance-taxes.html
  2. https://revenue.iowa.gov/media/3955/download?inline
  3. https://www.kiplinger.com/taxes/whats-the-new-estate-tax-exemption
  4. https://taxfoundation.org/data/all/state/state-estate-tax-inheritance-tax-2023/
  5. https://www.schwab.com/learn/story/countdown-gift-and-estate-tax-exemptions
  6. https://www.irs.gov/newsroom/irs-releases-tax-inflation-adjustments-for-tax-year-2025#:~:text=Annual%20exclusion%20for%20gifts%20increases,%2418%2C000%20for%20calendar%20year%202024.
  7. https://www.kiplinger.com/taxes/capital-gains-tax/602224/capital-gains-tax-rates
  8. https://learn.valur.com/south-carolina-capital-gains-tax-explained/

 

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