Business taxes
South Carolina Bonus Depreciation Addback: How the Adjustment Works Year by Year
South Carolina does not allow federal bonus depreciation under IRC Section 168(k). In the year an asset is placed in service, you add back the difference between your federal depreciation and the depreciation you would have claimed without bonus, then take extra South Carolina depreciation in the later years of the same recovery period. The asset carries a higher South Carolina basis until it is fully depreciated or sold.
- S.C. Code 12-6-50(4) specifically does not adopt IRC Sections 168(k), (l), (m) and (n).
- Year one: add back federal depreciation minus the depreciation allowed without bonus.
- The recovery period is the same for both returns, so the state catches up through extra deductions in later years.
- South Carolina adjusted basis stays above federal basis, and gain or loss on disposal is figured from each return's own basis.
- SCDOR also lists the higher Section 179 limit enacted in July 2025 among federal changes South Carolina has not adopted.
- Business personal property returns use South Carolina income tax depreciation, never bonus.
Who this applies to
- Sole proprietors, landlords and pass-through owners whose federal depreciation includes bonus
- C corporations filing the SC1120
- Businesses that expensed equipment federally above the pre-2025 Section 179 limit
- Anyone selling an asset on which bonus depreciation was claimed
Who this may not apply to
- Taxpayers who elected out of bonus depreciation federally for the class of property (there is nothing to add back)
- Assets expensed under Section 179 within the limit South Carolina recognizes
The rule
South Carolina's income tax starts from federal figures and then lists the federal provisions it refuses. Bonus depreciation has been on that list since 2003. S.C. Code 12-6-50(4) does not adopt IRC Section 168(k), the bonus provision, or the related 168(l), (m) and (n). The July 2025 federal law that made 100% bonus permanent for property acquired after January 19, 2025 changed nothing for South Carolina; SCDOR's Information Letter 26-4 says the state specifically does not adopt the 2025 changes to 168(k).
SCDOR's 2025 SC1040 instructions describe the mechanics. With or without bonus, the depreciable life of the property is the same for federal and state purposes. For the year the property is placed in service, you add back the difference between the federal depreciation deduction and the deduction that would have been allowed without bonus. Your South Carolina adjusted basis is then greater than your federal basis, and for every other year of the asset's life an additional South Carolina deduction is available.
A worked example
Take a $50,000 piece of five-year equipment, placed in service in 2026 and eligible for 100% bonus federally. Without bonus, the IRS half-year convention table in Publication 946 gives 20% of cost in the first year, which is the figure South Carolina allows.
| Year | Federal depreciation | South Carolina depreciation | South Carolina adjustment |
|---|---|---|---|
| Year 1 (placed in service) | $50,000 | $10,000 | Add back $40,000 |
| Years 2 to 6 | $0 | $40,000 in total, by the MACRS table | Subtract the year's South Carolina depreciation |
| Total over the asset's life | $50,000 | $50,000 | Nets to zero |
The deduction is not lost; it is deferred, and the deferral lasts the whole recovery period. On five-year equipment the South Carolina catch-up runs across five more returns after the addback year, and it is easy to drop when a business changes preparers or software.
Where the adjustment goes
- Individuals: on the 2025 SC1040 the year-one addback is entered on line e, other additions, and the later-year deduction on line v, other subtractions, each with an explanation attached. The SC1040 is being redesigned for 2026 under H.4216, so confirm the line on the 2026 form.
- Individuals from 2026: the state return now starts from federal adjusted gross income. Bonus depreciation reduces AGI through Schedule C, E or F or a K-1, so the adjustment is still needed. H.4216 did not touch 12-6-50(4).
- Corporations: the SC1120 starts from federal taxable income, and the addback and later subtractions go on its additions and deductions schedules with a supporting schedule attached.
- Records: SCDOR expects a separate South Carolina depreciation schedule for any asset on which bonus was claimed federally.
Section 179 is now a separate adjustment
Section 179 is not on the not-adopted list, so for years South Carolina simply followed the federal expensing election. That changed in 2025. South Carolina conforms to the Internal Revenue Code as it stood on December 31, 2024, and the July 2025 federal law raised the Section 179 limit after that date. SCDOR's Information Letter 26-4 lists the increase among federal provisions that require an adjustment on the South Carolina return until the Legislature addresses conformity, and the 2026 session did not change the conformity date.
In practice, Section 179 within the limit in the Code as of December 31, 2024 is allowed for South Carolina. Expensing above that limit is reversed on the state return and recovered through South Carolina depreciation instead, in the same pattern as the bonus addback. A business choosing between Section 179 and bonus for federal purposes should look at both state outcomes before deciding.
Selling the asset
SCDOR Revenue Ruling 05-2 says that a taxpayer who claimed bonus federally must keep a separate South Carolina depreciation schedule, adjust the asset's basis, and, on disposal, calculate gain or loss to reflect the difference between federal and South Carolina basis. If you sell before the South Carolina catch-up is complete, the remaining difference shows up as a smaller South Carolina gain (or a larger loss) than the federal one. If you never tracked the state basis, that difference is what gets missed.
Property tax uses the state number
The same ruling reminds businesses that bonus depreciation is not used for South Carolina property tax either. The business personal property return asks for depreciation used for income tax purposes, capped at 90% of each item's cost, and that means the South Carolina schedule. Reporting a federally bonused asset as fully depreciated in its first year understates the property tax return.
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Sources
- S.C. Code Title 12, Chapter 6 (Sections 12-6-40 and 12-6-50)
- SCDOR — 2025 SC1040 individual income tax booklet (lines e and v)
- SCDOR — Information Letter 26-4, South Carolina IRC Conformity Update
- SCDOR — Revenue Ruling 05-2, Federal Income Tax Conformity and Exceptions
- SCDOR — SC1120 corporate income tax return
- SCDOR — PT-100 business personal property return instructions
- IRS — Publication 946, How To Depreciate Property
South Carolina publishes new guidance and local governments change their rates, so check the source pages for anything that has moved since the date above. The information on this site is general in nature and is not tax, legal, or accounting advice for your situation. Tax law changes and the right answer depends on facts we would need to review with you. Please speak with a qualified professional before acting on anything you read here.
Questions people ask about this
Do I lose the depreciation South Carolina disallows in the first year?
No. The addback is a timing difference. The same total cost is deducted on both returns over the asset's recovery period; South Carolina simply spreads it out, with extra state deductions in the years after the addback.
If I elect out of bonus depreciation federally, is there still a South Carolina addback?
No. The addback is the difference between the bonus depreciation taken and the depreciation allowed without it. If you elect out federally for a class of property, federal and South Carolina depreciation match for those assets.
Did H.4216 change the bonus depreciation addback for 2026?
No. Act 110 of 2026 changed the individual rates and decoupled South Carolina from the federal standard and itemized deductions, but it did not amend the bonus depreciation rule in S.C. Code 12-6-50(4). The addback still applies.
What happens if I sell equipment before the South Carolina depreciation catches up?
Gain or loss is calculated separately for each return using its own basis. Because the South Carolina basis is higher until the catch-up is complete, the South Carolina gain on an early sale is smaller than the federal gain by the remaining difference.
Keep reading
- Section 179 and Bonus DepreciationBoth write-offs are larger and more permanent than they have been for years. Neither of them is a reason to buy something, and one of them does considerably less in South Carolina than it does on the federal return.
- SC conformity to federal tax lawSouth Carolina adopts the Internal Revenue Code as it stood on a fixed date, currently December 31, 2024, minus a list of sections it never adopts. The 2026 Legislature did not move that date, so the federal changes enacted in July 2025 are not part of South Carolina law, and returns that claim them need state adjustments. Separately, H.4216 decoupled individuals from federal deductions starting in 2026.
- SC business personal property taxSouth Carolina taxes the furniture, fixtures and equipment a business uses. You report their cost and income tax depreciation on an annual return, the net value is assessed at 10.5%, and the county bills the tax at local millage, due January 15. Starting with property tax year 2027, Act 243 of 2026 exempts the first $10,000 of net depreciated value for qualifying small businesses and sends every business personal property return to SCDOR.
- Corporate income tax & license feeA C corporation doing business in South Carolina pays income tax at 5% of its South Carolina taxable income, which starts from federal taxable income. Every corporation, S corporations included, also pays an annual license fee of $15 plus $1 for each $1,000 of capital stock and paid-in surplus, with a $25 minimum. H.4216 changed individual rates for 2026; it did not change either corporate charge.
- Active trade or business incomeSouth Carolina lets owners of sole proprietorships, partnerships, S corporations and LLCs taxed as one of those choose a 3% rate on active trade or business income instead of the regular individual rates. Individuals elect it each year on Form I-335; a qualifying partnership or S corporation can instead elect to pay the 3% tax itself, computed on Form I-435. H.4216 did not amend the statute, but SCDOR has not yet said how the election fits the new 2026 rate structure.
- SC business license taxSouth Carolina has no statewide business license. Cities and counties that choose to levy one charge a business license tax, an excise on the privilege of doing business that is measured by gross income, not profit. Since Act 176 standardized the rules, every jurisdiction that levies it uses a May 1 to April 30 license year, an April 30 renewal date, a standard application and a common class schedule, but each sets its own rates.
- SC business tax creditsSouth Carolina has dozens of income tax credits for businesses, each with its own statute, schedule and limits. Most are nonrefundable: you claim them on a TC schedule summarized on the SC1120TC or SC1040TC, they cannot reduce tax below zero, and many are capped at a share of the tax owed, with unused amounts carried forward. For most Charleston-area small businesses, the credits worth checking first are the jobs credit, the research credit and the apprenticeship credit.
- South Carolina tax guideHow South Carolina taxes income, businesses and property, and what the Charleston area adds on top, with the state or local source beside every rule.
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