South Carolina Tax Rules

Useful South Carolina Income Tax Rules to Know as a Newcomer

Start with Federal Taxable Income:  South Carolina starts with Federal Taxable Income and then makes their adjustments.

First year must elect:  South Carolina does not have a partial year resident return, but rather you must elect to be treated as a full year resident or a full year non-resident.  This requires some careful analysis as to how long you remained in your departing state, the tax rates in both states, and the property tax amount on your new South Carolina home.  

Credit for taxes paid:  As a full year South Carolina resident you will also get a credit for any taxes paid in your departing state.  

Property tax reduction for residents:  As a resident you are also eligible for the reduced property tax assessment on your primary residence which could be 50% or more. 

Non-residents:  As a full year non-resident you will not be taxed on any of your non-South Carolina source income, but will be taxed on all wages and other income earned in the state. You will not be eligible for the property tax reduction until you declare residency and file a resident tax return.

No tax on out-of-state income:  Another unusual rule in South Carolina is that a resident does not have to pay tax on any out-of-state rental or business income.  On the other hand, if you have out-of-state rental or business losses, these have to be excluded which means your South Carolina taxable income will increase.

44% Exclusion on capital gains: South Carolina allows a 44% exemption from taxable income on net long term capital gains. 

Buy tax credits at a discount:  South Carolina is one of the few states that allows resale of Conservation and Angel Investor tax credits.  This has spawned several exchanges which allow taxpayers to purchase credits for a 15% discount.  For example, if you owe $10,000 in South Carolina tax, you could purchase $10,000 in tax credits for $8,500 (2018 update). 

College savings 529 benefit:  Saving for college for children or grandchildren gives you a South Carolina tax deduction if you enroll in the the Future Scholar 529 program with the state.  In addition, you can get a South Carolina tax deduction for a rollover from another state’s 529 program into the Future Scholar program.

Electronic filers get a break:  Finally, South Carolina gives electronic filers an extra 2 weeks to file their tax return.  The usual due date for returns is April 15th, but for electronic filers it is May 1.

-Sam Swisher of R.P. Boggs & Co., Wealth Management, Lake Wylie, SC
*Image © Mises Institute