South Carolina Tax on Capital Gains – South Carolina does not impose a separate capital gains tax. Instead, the state taxes capital gains as ordinary income through its individual income tax system. However, residents benefit from a significant 44% deduction on net long-term capital gains, which lowers the effective state tax rate on qualifying long-term investments.
This guide explains how South Carolina taxes capital gains in 2025 (returns filed in 2026), including current rates, the long-term deduction, calculation steps, filing requirements, and strategies to minimize your liability. All information is based on the latest official guidance from the South Carolina Department of Revenue (SCDOR) and trusted tax sources.
What Are Capital Gains and How Are They Taxed Nationally?
Capital gains occur when you sell a capital asset—such as stocks, bonds, real estate, or cryptocurrency—for more than its purchase price (basis). The IRS classifies gains as:
- Short-term: Assets held for one year or less, taxed at ordinary federal income tax rates (up to 37%).
- Long-term: Assets held for more than one year, taxed at preferential federal rates of 0%, 15%, or 20% (plus a potential 3.8% Net Investment Income Tax for high earners).
South Carolina starts with your federal taxable income (which already includes all capital gains reported on federal Schedule D) and then applies state-specific adjustments.
South Carolina Capital Gains Tax Overview for Residents
South Carolina residents pay state income tax on capital gains recognized during the tax year. The state conforms to federal rules for defining capital gains and the one-year holding period for long-term status.
Key difference from federal rules: South Carolina taxes both short-term and long-term gains at ordinary state income tax rates—but offers a generous 44% deduction exclusively for net long-term capital gains. Short-term gains receive no deduction and are fully taxable at your regular state rate.
Nonresidents are generally taxed only on South Carolina-sourced income (e.g., gain from selling real estate located in the state). Purchasers of real property from nonresidents must withhold 7% of the recognized gain.
2025 South Carolina Income Tax Brackets (Including Capital Gains)
For tax year 2025, South Carolina uses a graduated income tax with these brackets (same for single and married filing jointly filers in most cases):
| Taxable Income | Tax Rate |
|---|---|
| $0 – $3,560 | 0% |
| $3,561 – $17,830 | 3% |
| $17,831 and above | 6% |
Important note: The top marginal rate for 2025 is 6% (temporarily reduced via state budget legislation). It is scheduled to revert to 6.2% in mid-2026.
Most higher-income taxpayers with capital gains fall into the top 6% bracket.
Long-Term vs. Short-Term Capital Gains Treatment in South Carolina
- Long-term capital gains (held >1 year): Eligible for the 44% net capital gains deduction. Only 56% of the net long-term gain is subject to South Carolina tax.
- Short-term capital gains (held ≤1 year): No deduction—100% taxed at your ordinary state income tax rate.
- Net capital gain defined as: Excess of net long-term capital gain over any net short-term capital loss (per IRC §1222).
Example: A single filer in the 6% bracket realizes a $100,000 long-term capital gain with no offsetting losses.
- Deduction: 44% of $100,000 = $44,000
- Taxable portion in SC: $56,000
- State tax on this gain (at 6%): $3,360
- Effective state tax rate on the full gain: 3.36%
Short-term gains would be taxed on the full $100,000 at 6% ($6,000 state tax).
How the 44% Net Long-Term Capital Gains Deduction Works?
The deduction is claimed on your South Carolina Form SC1040 as a subtraction from federal taxable income. It applies to net long-term capital gains from stocks, mutual funds, real estate (including primary residences if not fully excluded federally), and other qualifying assets.
This makes South Carolina one of the more favorable states for long-term investors, effectively reducing the top state rate on long-term gains to roughly 3.36%.
The deduction is not available for short-term gains or for nonresidents on non-South Carolina sourced income.
Step-by-Step: Calculating South Carolina Capital Gains Tax
- Report all transactions on federal Form 8949 and Schedule D.
- Determine your federal taxable income (includes all capital gains).
- On SC1040, start with federal taxable income.
- Subtract the 44% net long-term capital gains deduction (calculate on your SC return or worksheets).
- Apply South Carolina tax brackets to the resulting South Carolina taxable income.
- Add any other SC additions or subtractions, then compute tax using the 2025 SC1040TT tax tables.
Use tax software or a CPA for accuracy, especially with carryover losses or complex investments.
Reporting and Filing Capital Gains on Your South Carolina Return
- File Form SC1040 if you are required to file a federal return or have South Carolina taxable income.
- The 2025 return filing deadline is automatically extended to October 15, 2026.
- Attach federal Schedule D if required.
- Claim the capital gains deduction as a subtraction on the SC1040.
- Estimated tax payments may be required if you expect significant gains.
South Carolina does not have a separate capital gains tax form—everything flows through the standard income tax return.
Special Situations: Real Estate, 1031 Exchanges, and Retirement Accounts
- Primary residence: Up to $250,000 ($500,000 married filing jointly) federal exclusion applies in South Carolina as well.
- Investment real estate: Long-term gains qualify for the 44% deduction. Nonresidents face 7% withholding on sales of SC real property.
- 1031 like-kind exchanges: Deferral works federally and generally carries over to South Carolina.
- Retirement accounts (IRAs, 401(k)s): Gains inside qualified accounts are not taxed until distribution (and may qualify for SC retirement income deductions if applicable).
Strategies to Reduce Your South Carolina Capital Gains Tax
- Hold investments for more than one year to qualify for the 44% deduction.
- Harvest tax losses to offset gains (federal rules apply; SC follows).
- Maximize retirement contributions and other SC deductions/credits.
- Consider moving to a no-income-tax state before large sales (but consult a tax advisor on residency rules).
- Use opportunity zones or other federal deferral strategies that flow through to SC.
Frequently Asked Questions About South Carolina Capital Gains Tax
Does South Carolina have a separate capital gains tax rate?
No. Gains are taxed at ordinary income rates (up to 6% in 2025), with the 44% long-term deduction.
Is the 44% deduction available every year?
Yes, for qualifying net long-term capital gains recognized each tax year.
Do I need to file an SC return if I only have capital gains?
Yes, if your federal adjusted gross income requires a federal return or if you have SC-source income.
How does SC compare to other states?
South Carolina is more favorable than most states for long-term capital gains due to the deduction, unlike the nine states with no income tax at all.
Always verify with the latest SCDOR forms and consult a qualified tax professional for your specific situation, as tax laws can change and individual circumstances vary.
For the most current forms and instructions, visit the official South Carolina Department of Revenue website at dor.sc.gov. Proper planning can help you keep more of your investment gains while staying fully compliant.