1031 Exchange in South Carolina
South Carolina conforms to the federal Internal Revenue Code (adopted through December 31, 2024), so a properly structured IRC Section 1031 like-kind exchange defers South Carolina income tax on real property gain just as it does federal tax. When a gain is eventually recognized, South Carolina allows individuals, estates, and trusts a 44% deduction on net capital gain, and it does not impose a separate 1031 clawback. Nonresident sellers face state withholding measured on the gain, which drops to zero to the extent gain is deferred in a valid exchange.
Fast Facts
- State Tax Treatment of Capital Gains
- South Carolina taxes capital gains as ordinary income under its individual income tax. Effective for 2026 (Act 110 / H.4216), that is a two-tier tax: 1.99% on income under $30,000 and 5.21% at $30,000 and above. Individuals, estates, and trusts may deduct 44% of net capital gain (Code 12-6-1150), so only about 56% of a net long-term gain is subject to tax.
- Conforms to Federal 1031
- Yes. South Carolina adopts the Internal Revenue Code as amended through December 31, 2024 (Code 12-6-40), so a valid federal Section 1031 exchange is also deferred for South Carolina income tax.
- Nonresident Withholding
- Buyers must withhold on a nonresident seller's South Carolina real estate gain (Code 12-8-580): a rate equal to the maximum individual income tax rate for individuals and 5% for corporations, measured on the gain shown by seller affidavit. Tax-deferred transactions are excluded.
- 1031 Withholding Relief
- Because withholding is measured on recognized gain and the statute excludes tax-deferred transactions, withholding is reduced or eliminated to the extent gain is deferred in a valid 1031 exchange. Form I-290 and a seller affidavit document the transaction.
- Deed Recording Fee (Transfer Tax)
- $1.85 per $500 of value ($1.30 state + $0.55 county), which is $3.70 per $1,000 (Code 12-24-10 et seq.). This deed recording fee applies to South Carolina conveyances in an exchange.
- Clawback
- None. South Carolina has no statute that recaptures previously deferred 1031 gain solely because replacement property is located out of state.
South Carolina Tax Treatment of 1031 Exchanges
South Carolina adopts the Internal Revenue Code as amended through December 31, 2024 under Code Section 12-6-40. (Starting with the 2026 tax year, Act 110 / H.4216 changed the return’s starting point to federal adjusted gross income and replaced the federal standard deduction with a new South Carolina Income Adjusted Deduction; see the SC DOR summary of H.4216.) Because Section 1031 is part of the adopted federal law, gain that is properly deferred on a federal like-kind exchange is also deferred for South Carolina purposes. There is no separate South Carolina election, and no additional state form beyond the federal Form 8824 that flows through to the state return.
The distinctive South Carolina feature appears only when gain is eventually recognized — for example, when you finally sell the replacement property in a taxable sale without another exchange. South Carolina taxes capital gains as ordinary income under its individual income tax, but Code Section 12-6-1150 allows individuals, estates, and trusts a deduction equal to 44% of net capital gain recognized in the state. In practical terms, only about 56% of a net long-term capital gain is exposed to South Carolina’s income tax rates. Effective for the 2026 tax year, Act 110 (H.4216) replaced the old graduated brackets with a two-tier rate: 1.99% on taxable income under $30,000 and 5.21% at $30,000 and above (with automatic future reductions tied to revenue growth). Because rates can change annually, confirm the current figures on the South Carolina DOR Individual Income Tax page before modeling a specific number. A 1031 exchange defers the entire gain, so the 44% deduction is a fallback benefit for whenever you do cash out.
Legal and Tax Considerations
State Tax on Capital Gains
Two-tier individual income tax (1.99% / 5.21% for 2026 under Act 110) with a 44% net-capital-gain deduction (Code 12-6-1150); deferred entirely in a valid 1031 exchange.
Conforms to Federal 1031
Yes. IRC adopted through December 31, 2024 (Code 12-6-40); a valid federal exchange defers South Carolina income tax.
Nonresident Withholding
Withholding on the nonresident seller's gain: maximum individual rate for individuals, 5% for corporations (Code 12-8-580); tax-deferred transactions are excluded.
Deed Recording Fee
$1.85 per $500 ($3.70 per $1,000) on South Carolina conveyances (Code 12-24-10 et seq.).
Required Documentation
- Federal Form 8824 (Like-Kind Exchanges), which flows to the South Carolina return
- South Carolina Form I-290 (nonresident real estate withholding) and a seller affidavit of gain
- Qualified Intermediary exchange agreement and assignment documents
- Settlement statements for the relinquished and replacement properties
Clawback Rule
None
Official References
- South Carolina Department of Revenue
- SC Code Section 12-6-40 (IRC Conformity)
- SC Code Section 12-6-1150 (44% Net Capital Gain Deduction)
- SC Code Section 12-8-580 (Nonresident Real Estate Withholding)
- SCDOR Deed Recording Fee
- SCDOR Form I-290 (Nonresident Real Estate Withholding)
- IRS Form 8824 (Like-Kind Exchanges)
Nonresident withholding and how 1031 changes it
If you are not a South Carolina resident, Code Section 12-8-580 requires the buyer to withhold on your gain from the sale of South Carolina real property. The rate is tied to the maximum individual income tax rate for individual sellers and is 5% for corporate sellers, and the buyer may rely on a seller affidavit stating the amount of gain. Withholding is calculated on that gain — not the full sale price — so the amount is already limited by how much gain you actually recognize.
This matters for exchanges: the statute excludes tax-deferred transactions, and in a fully deferred 1031 exchange there is no recognized gain to withhold against. When gain is only partially deferred (for example, if you take boot or trade down), withholding applies to the recognized portion. Report the transaction on Form I-290 with a supporting affidavit so the closing agent withholds the correct — often zero — amount. This is documentation, not a clawback; South Carolina is simply not withholding tax on gain that federal and state law both defer.
Step-by-Step 1031 Exchange Process
- 1
Engage a Qualified Intermediary before closing
For a delayed exchange, retain a Qualified Intermediary (QI) and sign the exchange agreement before you close on the relinquished property. You cannot receive or control the sale proceeds — the QI holds them. This is a federal requirement that applies to South Carolina exchanges.
- 2
Sell the relinquished property
Close the sale with the QI receiving the proceeds. If you are a nonresident of South Carolina, coordinate Form I-290 and a seller affidavit of gain with the closing agent so withholding reflects any deferral under the exchange.
- 3
Identify replacement property within 45 days
You have 45 calendar days from the sale to identify potential replacement property in writing, following the standard identification rules (typically the three-property or 200% rule). This deadline is fixed and not extended for weekends or holidays.
- 4
Close on replacement property within 180 days
You must acquire the identified replacement property within 180 days of the sale (or your tax-return due date, if earlier). Budget for the South Carolina deed recording fee of $3.70 per $1,000 on any South Carolina conveyance.
- 5
Report the exchange
Report the like-kind exchange on IRS Form 8824, which flows through to your South Carolina return. If you later recognize gain, the 44% net-capital-gain deduction may apply at that time.
Timeline Calculator
Enter the closing date of your relinquished property to calculate your 1031 exchange deadlines:
Frequently Asked Questions
Yes. South Carolina adopts the Internal Revenue Code as amended through December 31, 2024 (Code Section 12-6-40), which includes Section 1031. A like-kind exchange that is valid for federal tax purposes also defers South Carolina income tax on the gain, with no separate state election required.
A valid 1031 exchange defers the entire gain, so no capital gain is recognized in that year. The 44% deduction under Code Section 12-6-1150 applies later, when and if you recognize a net capital gain — for example, on an eventual taxable sale. At that point individuals, estates, and trusts deduct 44% of the net capital gain, leaving roughly 56% subject to the state income tax rates (a two-tier 1.99% / 5.21% structure for 2026 under Act 110).
Withholding under Code Section 12-8-580 is measured on the nonresident seller's recognized gain, and the statute excludes tax-deferred transactions. In a fully deferred exchange there is no recognized gain, so withholding is reduced or eliminated. Document the transaction with Form I-290 and a seller affidavit of gain so the closing agent withholds the correct amount.
No. South Carolina has no clawback statute that recaptures previously deferred 1031 gain solely because you move the investment to replacement property in another state. Gain remains deferred until you recognize it in a taxable transaction, subject to South Carolina's normal sourcing and income tax rules.
South Carolina imposes a deed recording fee (often called deed stamps or transfer tax) of $1.85 per $500 of value — $1.30 state plus $0.55 county — which equals $3.70 per $1,000. It applies to South Carolina conveyances in an exchange and is separate from income tax deferral under Section 1031.
Related Resources
- 1031 Exchange: The Complete Guide — federal rules, deadlines, and the role of a Qualified Intermediary
- State 1031 Exchange Guides — compare how other states treat like-kind exchanges
- South Carolina metro guides: Charleston–North Charleston, Columbia, Greenville–Anderson–Greer, Anderson, and Florence
This information is for educational purposes only and is not legal or tax advice. Tax rates and rules change; verify current figures with the South Carolina Department of Revenue and consult a qualified tax professional or attorney about your specific situation.