Selling off investments—whether it’s real estate, stocks, or a business interest—often triggers capital gains taxes. In South Carolina, specifically, knowing how those taxes work can significantly impact your overall tax bill. By grasping the basics of when and why capital gains taxes apply, you’ll be better positioned to protect your earnings.

Having a solid understanding of the state’s rules and regulations lets you plan ahead, avoid surprises, and keep more of the profits you’ve worked hard to earn. This involves everything from knowing the holding period for your assets to leveraging potential deductions or exemptions. With some foresight and the right strategy, you can minimize the bite capital gains taxes take from your proceeds.

In this overview, we’ll explore the fundamentals of capital gains tax in the Palmetto State: how to calculate your potential liability, how these taxes align with federal rules, and strategies that might reduce what you owe. Equipped with this knowledge, you’ll be prepared to make thoughtful decisions that protect your financial future.

Table Of Contents hide

1. What Are Capital Gains?

2. Federal Capital Gains Tax Rates

2.1. Short-term Capital Gains Rates

2.2. Long-term Capital Gains Rates

3. South Carolina’s Capital Gains Tax Explained

4. Exemptions and Special Considerations

5. How to Calculate Capital Gains Tax in South Carolina

6. Strategies to Reduce Capital Gains Tax in South Carolina

7. We Can Help You With Capital Gains Tax Planning in South Carolina

What Are Capital Gains?

Capital gains are the profits you earn by selling specific assets—such as stocks, bonds, other financial instruments, business interests, or real estate—for a higher amount than what you originally paid.

Generally, you only recognize a capital gain when an actual sale or other form of transfer occurs. Although certain exceptions exist, any increase in the value of your assets usually becomes relevant for tax purposes once you finalize the transaction. Capital gains are generally classified into two main types: short-term capital gains and long-term capital gains. The determining factor is the length of time an investor holds the asset before selling.

For short-term gains, the holding period is typically under a year, while long-term gains usually require the asset to be held for one year or more. The reason this matters is that each category can be taxed at different rates, influencing the overall cost of your sale.

Capital gains are realized not only through direct sales but also, in some cases, through gifts or inheritance. When you give away an asset as a gift, the recipient generally takes on the original cost basis, meaning they might inherit your gains or losses. Inheritance can work differently, often involving a step-up in basis that reduces the capital gain for heirs when they eventually sell the inherited asset.

Federal Capital Gains Tax Rates

The federal government sets baseline rules that apply throughout the country, and federal capital gains tax rates can greatly influence your decision on when and how to sell an asset. That said, these rates can change based on updates to national tax laws.

Short-term Capital Gains Rates

Short-term capital gains are taxed at regular income rates, which means they’re subject to the same brackets as your ordinary earnings. If these profits significantly increase your total income, you could be pushed into a higher bracket and wind up paying a larger tax bill.

Short-term capital gains typically face steeper taxes than their long-term counterparts. Depending on your income, you’ll usually be looking at short-term capital gains tax rates between 10% – 37%.¹

Long-term Capital Gains Rates

These are generally lower than short-term rates and are tied to specific income thresholds. If you’ve owned an asset for over a year, you can often benefit from reduced rates that can keep more money in your pocket.

For 2025, federal long-term capital gains tax rates are broken down by filing status as follows:²

0% rate
- Single filers: Up to $48,350
- Married filing jointly: Up to $96,700
- Married filing separately: Up to $48,350
- Head of household: Up to $64,750
15% rate
- Single filers: $48,351 – $533,400
- Married filing jointly: $96,701 – $600,050
- Married filing separately: $48,351 – $300,000
- Head of household: $64,751 – $566,700
20% rate
- Above these upper thresholds for each respective filing status

Please Note: If your modified adjusted gross income (MAGI) exceeds certain thresholds you may have to pay taxes at an additional 3.8% rate called the Net Investment Income Tax (NIIT). This tax can apply to interest, dividends, capital gains, rental income, and other passive earnings, so it’s wise to factor it into your planning if your income approaches these levels.³

South Carolina’s Capital Gains Tax Explained

In South Carolina, capital gains fall under the same brackets as the state’s regular income tax. Consequently, depending on how much you earn, you’ll be charged either 0%, 3%, or 6% on any profits.

Below is a look at the 2025 capital gains tax rates, which mirror the state’s income tax percentages:⁴

0% rate
- All filers: Up to $3,460
3% rate
- All filers: $3,461 – $17,330
6.2% rate
- All filers: $17,331 or more

This approach can influence the way you handle asset sales, especially if you have multiple income sources in a given year. When combined with your federal responsibilities, South Carolina capital gains might push you into a higher bracket if you’re not careful about timing.

Exemptions and Special Considerations

When it comes to capital gains taxes, it’s worth exploring whether certain exclusions or unique scenarios could ease your tax bill. For example, selling a rental property might yield different results than selling your family home. Ultimately, the types of exemptions available to you can vary based on your situation and the nature of your assets.

Below are key areas that can provide tax relief for many taxpayers:

South Carolina Deduction: Although South Carolina taxes capital gains using marginal brackets, the state provides special relief for certain gains. Specifically, South Carolina allows a 44% exclusion amount for eligible long-term capital gains, which effectively lowers the portion of your gain that ends up being taxed at the state level.⁵

Primary residence exclusion: One of the most important provisions for homeowners is the exclusion of your primary residence under federal rules. If you meet specific ownership and occupancy requirements, you can exclude up to $250,000 of capital gains if you file singly or up to $500,000 if you file jointly.⁶

Step-up in basis for inherited property: In most cases, when property is passed down through an inheritance, its tax basis is reset to the fair market value as of the date the original owner passed away. This means that if heirs decide to sell soon after inheriting, any gain would be significantly reduced. Consequently, inheritors often avoid hefty taxes because the property’s new basis aligns closely with its market value, minimizing any realized gain.

1031 exchanges: A 1031 exchange is a useful strategy for real estate investors, enabling them to postpone capital gains taxes by reinvesting the profits from a sold property into another similar property. While this strategy doesn’t eliminate taxes altogether, it effectively pushes the gain into the future, enabling you to leverage funds that would otherwise have gone toward taxes. If you continue exchanging up and never cash out, you can keep deferring your tax obligation until you eventually sell without reinvesting.

How to Calculate Capital Gains Tax in South Carolina

Calculating capital gains tax liability in South Carolina starts with establishing your cost basis. This generally includes the original purchase price of your asset plus any improvements, like renovations on a home or upgrades to a business.

If you’ve made significant changes to real property over the years or if a stock you own has gone through splits or dividend reinvestments, you need to account for these adjustments when determining your cost basis. Accurate record-keeping is key for avoiding inflated profit calculations that could lead to higher-than-necessary tax payments.

Depreciation is another important factor, especially for real estate investments or business equipment. When you claim depreciation deductions over time, it lowers your cost basis, which can later increase your taxable gain. The result is a possible increase in the amount of capital gains you report when you sell the asset. Understanding how depreciation recapture works is important for accurately computing your final tax liability.

After you calculate your net gain—factoring in cost basis, depreciation recapture, and any allowable losses—you’ll figure out your federal tax obligation. This amount depends on whether the gain is short-term or long-term, as well as your overall income level. Once you have your federal totals, you then layer on South Carolina’s individual income tax structure, factoring in exclusions like the 44% reduction for certain long-term assets.

Putting all of these pieces together will give you a snapshot of your combined federal and state liability. By planning when to sell and keeping thorough documentation, you can precisely estimate how much you’ll owe at tax time, making it easier to budget and make informed decisions about potential transactions in the future.

Please Note: The calculation process can be complicated quickly, which is why working with a variety of professionals can be helpful. A CPA can evaluate your state and federal tax obligations, confirm deduction eligibility, and ensure accurate filings, while a financial advisor can help determine asset values, anticipate future tax consequences, and align decisions with long-term goals.

Strategies to Reduce Capital Gains Tax in South Carolina

When you’re aiming to manage or lower your overall tax burden, it’s important to consider legal methods for reducing capital gains taxes. Some of these strategies are straightforward, while others might require more planning and assistance from a financial advisor or accountant. Regardless of your approach, the goal is to retain more of the proceeds from your asset sales, allowing you to invest, save, or spend those funds according to your personal goals.

Keep an eye on your portfolio, property holdings, and available resources to identify opportunities for tax savings:

Tax-loss harvesting: Losses in one part of your investment portfolio can be applied to reduce gains in another, lowering your overall taxable amount. By strategically selling losing positions to match your winning positions, you lower your net capital gains and, in turn, reduce the portion of your income that’s subject to taxes. This strategy also helps keep your investments balanced and may free up funds for reinvesting in more profitable areas.

Holding periods and timing sales: Be strategic about both your holding periods and the timing of sales to optimize tax outcomes. By staying invested for over a year, you can qualify for lower long-term capital gains rates, which reduce the portion of your profit exposed to higher short-term tax brackets. If you anticipate a lower income year—whether due to retirement, a sabbatical, or another event—consider realizing gains during that period to further minimize your total tax obligation. Even a brief shift in when you sell can make a significant difference in your final tax outcome.

Installment sales: Rather than taking a lump sum from the sale of an asset, you can opt for installment payments over time. Spreading your capital gains over several years can help keep you within a more favorable tax bracket each time. It also helps with cash flow management if you don’t need all the proceeds at once.

Utilizing tax-advantaged accounts: Individual retirement accounts (IRAs), 401(k)s, and health savings accounts (HSAs) can play an important role in deferring or even eliminating taxes on certain gains. In some cases, you can contribute assets or direct capital gains into these accounts to grow them without taking an immediate tax hit. Over time, this can compound the benefit and help you save more effectively for retirement or healthcare expenses.

Charitable giving: Donating appreciated assets, such as shares of stock or real property, to qualified charities can cut down the capital gains you’d otherwise owe. Moreover, you may qualify for a charitable deduction on your return, giving you an additional tax break. Be mindful of federal and state guidelines so that your charitable donation meets the necessary standards to reduce your taxable income.

We Can Help You With Capital Gains Tax Planning in South Carolina

Ultimately, capital gains tax rules can be complicated, but having a solid grasp of how they work can save you a lot of time and money. Whether you’re exploring a home sale, considering selling an asset-rich business or evaluating other investments, careful planning helps you make strategic moves that won’t result in unexpectedly high taxes.

By structuring transactions properly, timing your sales to benefit from more favorable rates, and taking advantage of any available exclusions, you put yourself in a stronger financial position.

Working with professionals—accountants, financial advisors, and estate planning attorneys—ensures that the nuances of both federal and South Carolina tax laws are navigated correctly. When you have a proactive strategy, you’re better able to plan for your long-term goals, such as retirement, estate planning, or reinvestment in new opportunities. Even small changes to your overall plan can accumulate into significant savings in the long run.

If you’re unsure how to integrate these approaches into your broader financial plan, our experienced advisory team can customize guidance to your unique circumstances. From identifying a favorable time to sell certain assets to structuring transactions for greater tax efficiency, professional expertise can be invaluable. We invite you to schedule a complimentary consultation today to learn more.

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Clayton Quamme

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South Carolina Capital Gains Tax: What You Need To Know