South Carolina
Reviewed October 2026Federal §453 conformity
Yes — South Carolina starts from the federal return and taxes installment gain as payments arrive, with 44% of net long-term capital gain deducted, taking the effective top rate to roughly 2.9%. The rate structure itself was settled this spring: Act 110 (2026) replaced the old brackets with two rates for 2026 and later — 1.99% on income under $30,000 and 5.21% at or above — and left the 44% deduction untouched. The only remaining moving part is a set of future cuts that happen if state revenue grows enough, so multi-year projections should check each year for a triggered reduction rather than assume one.
Nonresident sourcing
Gain from South Carolina real estate or a business operating here is South Carolina income for sellers anywhere — coastal property owned from out of state being the everyday pattern — with the 44% deduction applying to that gain. Intangible gain generally follows the seller home.
Withholding
South Carolina withholds 7% of the recognized gain when a nonresident sells real estate — and unlike the price-based states, its regime is built for installment sales: the buyer withholds from each payment as it arrives, matched to the gain recognized that year. That's fairer arithmetic, but it makes the buyer a multi-year withholding agent, which belongs in the note's documentation from the start.
Selling, then moving (residency change)
South Carolina-source gain stays taxable here after a move; other gain travels with the seller, and no rule accelerates deferred gain at the border.
Pass-through entity (PTE) tax election
South Carolina offers an entity-level election at a flat 3% on active trade or business income — notably lower than the individual top rate, which makes the election unusually attractive here when the gain qualifies as active business income. Confirm what the 3% base includes for a sale year before relying on it.
Estate and IRD
South Carolina has no estate or inheritance tax. At death the federal rules apply — heirs pay income tax as payments arrive, with the 44% deduction continuing to apply to the gain component.
Planning notes
South Carolina's list: apply the 44% deduction before quoting any rate and check each payment year whether a revenue trigger has cut the 5.21% rate; for nonresident real estate sellers, set up the per-payment withholding machinery in the note documents so the buyer's obligation is clear for the life of the stream; and test the 3% active-income election, which is a better deal here than the workaround is in most states.
South Carolina's nonresident withholding is gain-based and installment-aware: 7% of the gain recognized in each payment, withheld by the buyer as payments arrive — for the life of the note. Fair arithmetic, but it makes the buyer a multi-year withholding agent; write that duty into the note documents at closing.
South Carolina taxes elected active trade or business income at a flat 3% — roughly half the regular top rate. Where the sale gain qualifies as active business income, the election beats the standard treatment on its own terms, before the federal deduction is even counted.
Educational information, current as of the October 2026 review. State law changes; confirm treatment with a qualified advisor before structuring a transaction.
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