Income tax for individuals
South Carolina's 44% Capital Gains Deduction in 2026
South Carolina lets individuals, estates and trusts deduct 44% of their net capital gain, which is net long-term gain (assets held more than one year) minus net short-term loss. At the 2026 top rate of 5.21%, that taxes the remaining 56% of a long-term gain at an effective rate of about 2.9%. H.4216 did not amend Section 12-6-1150, but the full gain still counts in federal AGI for the new SCIAD phase-out.
- Deduction equals 44% of net capital gain recognized in South Carolina (Section 12-6-1150).
- Net capital gain follows the federal definition: net long-term capital gain over net short-term capital loss.
- The holding period is the federal one: more than one year.
- Installment sale gains, mutual fund capital gain distributions and gains passed through from partnerships and S corporations qualify.
- Short-term gains get no deduction and are taxed like wages.
- H.4216 did not amend Section 12-6-1150; SCDOR's 2026 form is still to come.
Who this applies to
- South Carolina residents selling stock, funds, land, rental property or a business interest held more than one year
- Partners and S corporation shareholders with long-term gains on their K-1s
- Nonresidents with long-term gains taxable in South Carolina, such as on South Carolina real estate
- Estates and trusts, for gains taxed to the estate, trust or individual beneficiaries
Who this may not apply to
- Short-term gains on assets held one year or less
- C corporations, which have no capital gain deduction
Status for 2026 under H.4216
Section 12-6-1150(A) allows individuals, estates and trusts a deduction from South Carolina taxable income equal to 44% of net capital gain recognized in South Carolina during the year. The 44% figure has applied since tax years beginning after 2000. H.4216 (Act No. 110 of 2026) amended the rates, created the SCIAD and decoupled from federal standard and itemized deductions, but it did not amend Section 12-6-1150, which is unchanged in the Code as published on scstatehouse.gov. SCDOR's Information Letter #26-20 lists no change to the deduction. SCDOR had not published the 2026 SC1040 or its instructions as of 25 October 2026, so the 2026 line number is not yet known.
How the deduction is figured
Net capital gain is defined by reference to Internal Revenue Code Section 1222: the amount by which net long-term capital gain exceeds net short-term capital loss. Long-term means held more than one year, the same as the federal rule, and SCDOR's instructions say installment sale income and capital gain distributions qualify if the more-than-one-year holding period has been met. South Carolina income also includes capital gains and losses from partnerships and S corporations, so long-term gains on a K-1 enter the same calculation.
| Item | Amount |
|---|---|
| Long-term gain on stock held more than one year | $10,000 |
| Long-term loss on other stock | ($3,000) |
| Net long-term capital gain | $7,000 |
| Short-term loss on stock held six months | ($5,000) |
| Net capital gain | $2,000 |
| Deduction at 44% | $880 |
What the deduction is worth in 2026
With the deduction, 56% of a net long-term gain remains in South Carolina taxable income. For income above the $30,000 line, H.4216's 5.21% rate applies, so the effective state rate on a long-term gain is about 2.92% (5.21% x 56%). A short-term gain of the same size is taxed in full at 5.21%. For a taxpayer whose income stays below $30,000 of South Carolina taxable income, the 1.99% rate on 56% of the gain works out to about 1.1%.
| Long-term (held more than one year) | Short-term (held one year or less) | |
|---|---|---|
| Gain included in federal AGI | $100,000 | $100,000 |
| 44% deduction | ($44,000) | $0 |
| Added to SC taxable income | $56,000 | $100,000 |
| SC tax at 5.21% | $2,918 | $5,210 |
The 2026 catch: the full gain still counts in federal AGI
From 2026, the South Carolina return starts from federal adjusted gross income, and the new South Carolina Income Adjusted Deduction (SCIAD) phases out as federal AGI rises: from $40,000 for single filers, $60,000 for heads of household and $80,000 for married couples filing jointly, reaching zero at $95,000, $142,500 and $190,000. Federal AGI includes the entire gain, before South Carolina's 44% deduction. Under Section 12-6-1140(15), a large one-time gain can therefore wipe out the SCIAD for that year.
Example: a married couple with $70,000 of other federal AGI would have a full $30,000 SCIAD. If they also sell a long-held lot with a $150,000 long-term gain, federal AGI becomes $220,000 and the SCIAD is zero. South Carolina taxable income rises by the $84,000 of gain left after the 44% deduction plus the $30,000 of SCIAD lost. At 5.21%, that is about $5,940 of added South Carolina tax on a $150,000 gain, or about 4%, rather than the 2.9% the deduction alone suggests. Couples whose AGI is already above $190,000 lose nothing extra, because they have no SCIAD to lose.
Planning around the deduction
- Holding period: an asset sold one day too early produces short-term gain with no South Carolina deduction, on top of the federal difference.
- Timing: if your income usually sits inside a SCIAD phase-out range, a large gain may cost more in the year you take it than the 2.9% headline rate. Spreading a sale through an installment arrangement, where commercially sensible, keeps the 44% deduction on each year's gain and can limit the SCIAD loss.
- Losses: harvesting losses reduces federal AGI and net capital gain together. The federal limit on deducting net capital losses against other income, and the carryforward of the excess, flow into federal AGI.
- Rental property: gain on a rental sale has parts that are not capital gain. Our rental property article covers how a rental sale is taxed.
Residents, nonresidents and movers
The deduction applies to net capital gain recognized in South Carolina. A full-year resident applies it to all qualifying gains. A nonresident who sells South Carolina real estate reports that gain to South Carolina and applies the deduction to it. Someone who moves to or from South Carolina during the year files with Schedule NR, and the date of a sale relative to the move is one of the facts that decides what South Carolina reports; our part-year resident guide covers that return.
What we check on a return with capital gains
We tie the South Carolina figure to federal Schedule D and Form 8949, confirm holding periods on lots near the one-year mark, pick up long-term gains on K-1s and mutual fund capital gain distributions, and, from 2026, show the SCIAD effect of a planned sale before it happens rather than after.
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Sources
- SC Code of Laws, Title 12, Chapter 6 (Income Tax Act)
- SC General Assembly — H.4216 (Act No. 110 of 2026), ratified text
- SCDOR — Information Letter #26-20, Individual Income Tax Reform (31 Aug 2026)
- SCDOR — 2025 SC1040 Individual Income Tax Instructions
- SCDOR — Individual Income Tax
- IRS — Topic no. 409, Capital gains and losses
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
Does South Carolina tax capital gains as ordinary income?
Short-term gains, yes: they are taxed at the same rates as other income. Long-term gains get a deduction of 44% of net capital gain, so only 56% is taxed. At the 2026 top rate of 5.21%, that is an effective rate of about 2.9%.
Do short-term capital gains qualify for the South Carolina deduction?
No. The deduction applies to net capital gain, which is net long-term gain in excess of net short-term loss. Gains on assets held one year or less are taxed in full.
Does a long-term gain from my S corporation or partnership qualify?
Yes. Section 12-6-1150 says South Carolina income includes capital gains and losses from partnerships and S corporations, so long-term gains passed through on a K-1 are part of the net capital gain calculation.
Did H.4216 get rid of the 44% capital gains deduction?
No. H.4216 did not amend Section 12-6-1150. The change that affects gains is indirect: the new SCIAD phases out using federal AGI, which includes the whole gain before the 44% deduction.
Keep reading
- SC income tax in 2026For tax year 2026, South Carolina taxes income under $30,000 at 1.99% and income of $30,000 or more at 5.21% minus $966. The state return now starts from federal adjusted gross income, ignores the federal standard and itemized deductions, and gives its own South Carolina Income Adjusted Deduction (SCIAD) instead. The state's own subtractions, such as the retirement, age 65, military retirement and 44% capital gains deductions, were not amended by the act.
- The SC Income Adjusted DeductionThe South Carolina Income Adjusted Deduction (SCIAD) replaces the federal standard and itemized deductions on South Carolina returns from tax year 2026. It is $15,000 for single or married filing separately, $22,500 for head of household and $30,000 for married filing jointly or surviving spouse, and it phases out as federal AGI rises, disappearing at $95,000, $142,500 and $190,000 respectively.
- Rental Property Tax in South CarolinaThe federal side of a rental is the same in Charleston as it is anywhere. What is different — and what costs Lowcountry owners the most money — is the layer underneath it: the assessment ratio, the accommodations taxes, and which jurisdiction you are actually in.
- Filing a part-year SC returnIn the year you move into or out of South Carolina, Section 12-6-1710 gives you a choice. You can report all of your income for the year as if you were a resident and claim a credit for tax paid to the other state, or you can file as a nonresident using Schedule NR, which taxes everything you earned while a resident plus South Carolina-source income from the rest of the year. Which costs less depends on the other state's tax and on when your income arrived.
- The SC 529 plan deductionSouth Carolina lets you deduct contributions to its own Section 529 college savings plan, Future Scholar, up to the plan's maximum account limits, with no separate state dollar cap. Contributions made during 2026 or by April 15, 2027 can be deducted on the 2026 return. H.4216 did not change this deduction, so it still sits on top of the new SC Income Adjusted Deduction.
- SC estimated tax in 2026South Carolina expects estimated payments from anyone who will owe $100 or more after withholding, but the 2026 SC1040ES worksheet was printed before H.4216 and still uses the old rates and starting point. For 2026, estimate from federal AGI using the new SCIAD and the 1.99% and 5.21% rates. You avoid an underpayment penalty if your withholding and timely estimates cover at least 90% of your 2026 tax or 100% of your 2025 tax, rising to 110% if your 2025 AGI was over $150,000.
- 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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