Business taxes
South Carolina IRC Conformity: Which Federal Tax Changes Apply on Your State Return
South 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.
- S.C. Code 12-6-40 defines the Internal Revenue Code as the Code amended through December 31, 2024, including its effective-date provisions.
- S.C. Code 12-6-50 lists federal sections South Carolina never adopts, including bonus depreciation, the business interest limit in 163(j), NOL carrybacks and the 199A deduction.
- SCDOR's Information Letter 26-4 lists eight 2025 federal provisions that require a South Carolina adjustment, including Section 179 and domestic research expensing.
- A 2026 conformity bill (H.3368) failed in the Senate on March 31, 2026, and SCDOR's October 2026 legislative update lists no conformity act.
- From 2026, individuals start from federal AGI and ignore federal standard and itemized deductions, which makes most of the individual differences moot. The business differences remain.
Who this applies to
- Business owners whose federal return uses the 2025 changes to Section 179, research expensing or bonus depreciation
- C corporations, which start the SC1120 from federal taxable income
- Individuals who filed 2025 South Carolina returns claiming the new federal deductions
- Anyone comparing a federal and a state return and finding they do not match
Who this may not apply to
- Taxpayers with only wages and no business or rental activity, for whom the 2026 differences are largely handled by the new starting point
- Federal provisions in effect before 2025 that South Carolina already adopted
How conformity works
South Carolina does not write its own income tax base from scratch. S.C. Code 12-6-40 adopts the federal Internal Revenue Code as amended through a specific date, and S.C. Code 12-6-50 then lists the sections that do not apply. Each year the Legislature has normally moved the date forward to the previous December 31. The most recent update, 2025 Act 63, set it at December 31, 2024. Federal changes enacted after that date are not part of South Carolina law until the Legislature adopts them.
There is one narrow exception in the statute. If a federal provision South Carolina had adopted expired on December 31, 2024 and Congress extended it during 2025 without otherwise amending it, the extension carries over to South Carolina automatically.
What the 2026 session did and did not do
The July 2025 federal law, P.L. 119-21, came after the 2025 session had adjourned. In 2026 the House passed H.3368, which SCDOR described as conforming state law to the current Code, including that federal law; it failed on second reading in the Senate on March 31, 2026. A stand-alone conformity bill, H.5178, has sat in House Ways and Means since February. Instead, the Legislature passed H.4216 (Act 110), which rewrote the individual income tax for 2026 but did not change the conformity date. SCDOR's 2026 Tax Legislative Update, issued October 1, 2026, lists no conformity act.
So for both 2025 and 2026, South Carolina's starting point is still the Code as of December 31, 2024. SCDOR has said it will issue updated guidance once the Legislature addresses conformity.
| Federal provision | 2025 South Carolina return | 2026 South Carolina return |
|---|---|---|
| Higher standard deduction | Adjust | Not relevant: South Carolina no longer uses the federal standard deduction |
| Senior deduction (age 65 and older) | Adjust | Not relevant: decoupled by Act 110 |
| Qualified tips deduction | Adjust | Not relevant: decoupled by Act 110 |
| Qualified overtime deduction | Adjust | Not relevant: decoupled by Act 110 |
| Car loan interest deduction | Adjust | Not relevant: decoupled by Act 110 |
| Higher SALT cap for itemizers | Adjust | Not relevant: federal itemized deductions not used |
| Immediate deduction of domestic research costs | Adjust | Still adjust while the conformity date stays at December 31, 2024 |
| Higher Section 179 expensing limit | Adjust | Still adjust while the conformity date stays at December 31, 2024 |
| Changes to bonus depreciation (168(k)) | Never adopted | Never adopted |
The sections South Carolina never adopts
These differences are permanent features of the law rather than timing gaps, and they apply regardless of the conformity date. Among the items in S.C. Code 12-6-50:
- Bonus depreciation, Sections 168(k), (l), (m) and (n), which produces the first-year addback.
- The business interest expense limitation in Section 163(j), along with the related carryover rules.
- Net operating loss carrybacks under Section 172(b)(1). South Carolina allows no carrybacks.
- The qualified business income deduction in Section 199A.
- Federal tax rates, federal minimum taxes (Sections 55 to 59A) and most federal credits (Sections 22 to 54). South Carolina has its own rates and credits.
- The taxation of Social Security benefits under Section 86 and unemployment compensation under Section 85(c).
- From 2026, the federal standard and itemized deductions in Section 63(b) through (g), added by Act 110.
What it means for individuals in 2026
For tax years after 2025, the individual return starts from federal adjusted gross income instead of federal taxable income, and South Carolina substitutes its own South Carolina Income Adjusted Deduction. Because the new federal deductions for tips, overtime, car loan interest and seniors are taken below AGI, they never reach the state return, which is why most of the 2025 list falls away. What still flows through is anything inside AGI: business income on Schedule C, rental income on Schedule E, and K-1 income. If that income was reduced by research expensing or Section 179 above the pre-2025 limit, South Carolina adjustments are still required.
What it means for businesses
The SC1120 starts from federal taxable income, so every non-conforming item becomes a line on its additions and deductions schedules. The practical consequence is a set of separate state records that last for years: a South Carolina depreciation schedule for assets with bonus or excess Section 179, and a South Carolina amortization schedule for research costs that were deducted immediately for federal purposes but must follow the Section 174 rules in effect at the end of 2024 for South Carolina. A business with interest expense limited federally under 163(j) has the opposite difference, since South Carolina does not apply that limit.
The 2025 returns
SCDOR automatically extended the filing deadline for 2025 individual returns to October 15, 2026 while the conformity bill was pending, but not the payment deadline. That date has passed and the bill did not pass, so the adjustments in Information Letter 26-4 stand. A 2025 South Carolina return that claimed any of those federal provisions without the state adjustment should be corrected.
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Sources
- S.C. Code Title 12, Chapter 6 (Sections 12-6-40 and 12-6-50)
- SCDOR — Information Letter 26-4, South Carolina IRC Conformity Update
- SCDOR — Information Letter 26-20, Individual Income Tax Reform
- SCDOR — Information Letter 26-23, Tax Legislative Update for 2026
- SCDOR — Statement on income tax conformity; 2025 filing deadline extended (March 26, 2026)
- SC General Assembly — H.3368 bill history
- SCDOR — Information about H.4216
- SCDOR — Revenue Ruling 05-2, Federal Income Tax Conformity and Exceptions
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
Did South Carolina adopt the One Big Beautiful Bill Act?
No. South Carolina conforms to the Internal Revenue Code as amended through December 31, 2024, and the July 2025 law came after that date. The 2026 bill that would have updated conformity failed in the Senate, so returns claiming those federal provisions need South Carolina adjustments.
Can I deduct domestic research costs immediately on my South Carolina return?
Not under current conformity. SCDOR lists the 2025 federal research expensing change among provisions requiring a South Carolina adjustment, so for state purposes those costs follow the Section 174 rules in effect at the end of 2024, which required capitalization and amortization.
Why does my South Carolina return show different depreciation from my federal return?
Usually because of bonus depreciation, which South Carolina has never adopted, or Section 179 expensing above the limit in the Code as of December 31, 2024. Both create a state addback now and extra state depreciation later.
If South Carolina conforms later, will it apply retroactively?
That depends on what the Legislature enacts. Historically, when South Carolina has updated its conformity date it has generally adopted federal changes with their federal effective dates, as SCDOR Revenue Ruling 05-2 describes. SCDOR has said it will issue guidance once the Legislature acts.
Keep reading
- SC bonus depreciation addbackSouth 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.
- 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.
- 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.
- 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.
- 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.
- 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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