South Carolina Capital Gains Tax for Nonresidents: What to Know

Selling property or other assets in South Carolina as a nonresident comes with specific tax obligations, particularly regarding capital gains. The state taxes income earned within its borders, which can affect how much sellers owe after a sale. Understanding these rules helps avoid unexpected liabilities and ensures compliance.

This article covers key aspects of South Carolina’s capital gains tax for nonresidents, including taxable gains, tax calculations, withholding requirements, and filing procedures.

Nonresident Status for State Tax

South Carolina determines tax residency based on where an individual maintains their permanent home and primary ties. Nonresidents do not have a domicile in the state but earn income from South Carolina sources. The state taxes only this in-state income, not worldwide earnings.

Domicile refers to the place an individual intends to return to after temporary absences. Owning property or spending significant time in South Carolina does not automatically establish residency. Factors such as voter registration, driver’s license issuance, and financial account locations influence residency determinations.

Nonresidents who sell real estate, businesses, or other assets in South Carolina must report any taxable income from these transactions. The state follows a source-based taxation system, meaning income is taxed where it is generated rather than where the taxpayer resides. This applies to individuals and entities, including partnerships and corporations conducting business in South Carolina but registered elsewhere.

Types of Gains Subject to Tax

South Carolina taxes nonresidents on capital gains from selling tangible property and certain financial assets within the state. Real estate transactions are a primary source of taxable gains, including sales of residential homes, commercial buildings, and undeveloped land. The tax applies regardless of whether the property was used for personal purposes, rental income, or investment. For example, if a nonresident sells a vacation home in Charleston or a rental property in Greenville, any profit is subject to state taxation.

Beyond real estate, South Carolina taxes gains from selling business assets tied to in-state operations. If a nonresident owns a business in South Carolina and sells equipment, inventory, or the business itself, the resulting gains may be taxable. This includes tangible assets like machinery and vehicles, as well as intangible assets such as goodwill or customer lists if they are directly connected to business activities in the state. Distinguishing between ordinary income and capital gains in business asset sales can be complex, as different tax treatments may apply.

Stock sales are generally not taxed unless they involve ownership in a closely held corporation or partnership conducting business in South Carolina. If the sale attributes gain to the state, taxation may apply. This often occurs when selling an interest in a pass-through entity, such as an LLC or S corporation, where income is sourced based on the business’s activities rather than the shareholder’s residency. Publicly traded stocks are typically not subject to South Carolina taxation for nonresidents.

Calculating State Tax

South Carolina calculates capital gains tax by subtracting the asset’s adjusted basis—typically the original purchase price plus qualifying improvements or expenses—from the sale price. The state generally follows federal tax principles, but differences in depreciation recapture and other adjustments can impact the final taxable amount.

The state’s income tax rates range from 0% to 6.5% as of 2024. However, South Carolina offers a tax break on long-term capital gains, defined as assets held for more than one year before sale. Under state law, 44% of these gains are excluded from taxable income, meaning only 56% is subject to tax. For instance, if a nonresident sells South Carolina property and realizes a $100,000 long-term gain, only $56,000 is taxed at the applicable rate. Short-term capital gains, from assets held for one year or less, do not receive this exclusion and are taxed at the full rate based on the seller’s income level.

For jointly owned assets, South Carolina taxes only the portion of the gain attributable to the nonresident seller. If two co-owners each hold a 50% stake in a property and one is a nonresident, only their share of the gain is taxed. Similarly, if a nonresident sells an interest in a partnership or LLC, the taxable portion depends on the entity’s income-sourcing rules and the percentage of business conducted in South Carolina.

Withholding Requirements

South Carolina requires withholding on real estate transactions involving nonresident sellers to ensure tax collection before funds leave the state. The buyer is responsible for withholding a portion of the proceeds and remitting it to the South Carolina Department of Revenue (SCDOR).

The standard withholding rate is 7% of the seller’s recognized gain for individuals and 5% for corporations. If the gain is unknown at the time of sale, the buyer must withhold 7% of the total sales price for individuals and 5% for corporations. Withholding based on the sales price rather than the gain can result in overpayment, requiring the seller to claim a refund when filing a state tax return. To avoid excess withholding, sellers can submit Form I-295 to SCDOR before closing, requesting a reduced withholding amount based on the actual anticipated gain.

If an intermediary, such as a title company or attorney, facilitates the sale, they often handle the withholding process on behalf of the buyer. The withheld tax must be remitted to SCDOR within 30 days of closing using Form I-290, along with a statement detailing the transaction. Failure to withhold or remit the required amount can result in penalties for the buyer.

Filing and Payment

After a taxable sale, nonresidents must file a South Carolina income tax return to report the transaction and reconcile any withholding with their actual tax liability.

Nonresidents must file Form SC1040, along with Schedule NR, to report income earned in the state. If the sale involved real estate, sellers must include transaction details such as the sale price, adjusted basis, and applicable deductions.

The filing deadline follows the federal tax calendar, with returns due by April 15 of the year after the sale. Nonresidents can request an automatic six-month extension using Form SC4868, but this only extends the filing deadline, not the payment deadline. If the amount withheld at closing exceeds the final tax liability, the seller can claim a refund when filing. If withholding was insufficient, the remaining balance must be paid by the deadline to avoid penalties and interest. South Carolina imposes late payment penalties of 0.5% per month, up to a maximum of 25%, plus interest based on the federal short-term rate plus 3%.