Selling a home in South Carolina should feel like freedom — ocean breeze, closing check, fresh start. But Uncle Sam often shows up at the party with his hand out, asking about capital gains tax. The good news? You can keep more of your profit if you understand how the rules work and use the right exemptions. Let’s dig in, Myrtle Beach style.
What Is Capital Gains Tax (and Why Should You Care)?
When you sell a home for more than you paid, the IRS calls that profit a capital gain. If you sell your Surfside Beach bungalow for $450,000 but bought it for $300,000, you just made a $150,000 gain. Simple — except it’s not, because federal and state governments both want their share.
In South Carolina, you could owe up to 7% in state capital gains taxes, plus federal taxes that range from 0% to 20%, depending on your income bracket. For most primary homeowners, though, there are smart ways to dodge or reduce that bill entirely.
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Step 1: Use the Home Sale Exclusion (The IRS’s Coastal Loophole)
The Section 121 Exclusion is your best friend. It lets you exclude up to $250,000 in profit (or $500,000 for married couples) when you sell your primary residence.
To qualify:
You must have owned the home for at least 2 of the past 5 years.
You must have lived in it as your primary residence for 2 of the past 5 years.
You haven’t used the exclusion in the last two years.
So if you bought your home in Carolina Forest in 2020, lived there until 2023, and sell it in 2025, you’re golden — your profit (up to the limits) is tax-free.
Pro tip: You don’t need to live in the home the last two years before selling — just two years total within the five-year window.
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Step 2: Time the Sale to Match Market (and IRS) Timing
In the Grand Strand area, home prices have appreciated by over 7.8% year-over-year (MLS data, 2025 Q3). Timing your sale strategically can increase your net proceeds and optimize your tax exposure.
If you’re close to meeting that 2-year ownership rule, don’t rush. A premature sale could mean paying thousands in taxes that a few more months of residency would have erased.
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Step 3: Turn Capital Gains Into Coastal Improvements
Not every dollar of profit is taxable. You can adjust your home’s cost basis by adding what you’ve spent improving it. That means:
New roof over your Market Common home? Deductible.
Replaced windows to handle that salty air? Deductible.
Added a screened porch to watch the pelicans glide over the Intracoastal Waterway? You bet.
These capital improvements increase your home’s basis, reducing the taxable gain. Just keep records — receipts, invoices, permits — because the IRS doesn’t take your word for it.
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Step 4: Make Use of South Carolina’s Tax-Friendly Perks
According to Anytime Estimate’s South Carolina Closing Cost Calculator (2025 Update), sellers pay around 3.12% of the home price in closing costs, plus 5.65% in average realtor commissions. While these aren’t direct capital gains deductions, they impact your net profit — the number the IRS cares about.
South Carolina also offers a partial state deduction on long-term capital gains. You can exclude 44% of your net capital gain when filing your South Carolina return (SC Schedule D). That’s like the state saying, “Keep almost half — you earned it.”
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Step 5: Convert Your Home Into an Investment (Smart, Not Sneaky)
If you’re selling a second home or rental in Myrtle Beach, you won’t qualify for the home sale exclusion. But there’s another route: the 1031 Exchange. It lets you defer capital gains by reinvesting the proceeds into another “like-kind” investment property.
Rules to follow:
Identify the replacement property within 45 days of selling your old one.
Close on the new property within 180 days.
Use a qualified intermediary to handle the funds (don’t touch the money yourself).
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Step 6: Deduct Selling Expenses Like a Pro
Any cost “directly related to selling” can reduce your taxable gain. Here’s what typically qualifies:
Real estate commissions (up to 5.65% average per Anytime Estimate)
Attorney fees (South Carolina requires them at closing, averaging $750–$1,250)
Title insurance and recording fees
Transfer taxes (about 0.37% of the sale price)
Staging, advertising, and even pre-sale repairs
If your MLS listing in Horry County (MLS #2410023, for example) includes professional photography, that cost counts too.
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Step 7: Use Partial Exclusions if Life Happens
Sometimes you can’t meet the two-year rule — maybe a job transfer to Charleston or health reasons pushed your timeline. The IRS offers partial exclusions for those cases.
Example: You lived in your Myrtle Beach townhome for 12 months before relocating for work. You can still exclude half the normal amount ($125,000 single, $250,000 married). Document your reason, and keep employer letters or medical recommendations on hand.
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Step 8: Keep It Legit — The IRS Has Google Too
Trying to call your beach rental a “primary residence” when it’s been on Airbnb every weekend? Don’t. The IRS tracks rental income and utility usage. Stay within the rules, and you’ll sleep soundly under your new roof.
If you’re unsure, talk to a South Carolina tax attorney or CPA familiar with real estate — ideally one who’s handled closings in Horry, Georgetown, or Charleston counties. The right advice can save you thousands.
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The Bottom Line
You can sell your home in Myrtle Beach, sip sweet tea on your new porch, and keep more of your profit — if you plan ahead. Combine smart timing, accurate record-keeping, and legal tax strategies, and you’ll beat capital gains without breaking a sweat.
Ready to Sell Smart in Myrtle Beach?
Carolina Crafted Homes helps Grand Strand sellers maximize profit and minimize stress. Whether you’re listing in Carolina Forest, Market Common, or North Myrtle Beach, our agents know the market and the tax implications that come with it.
Schedule a consultation today to see how much you could save.
FAQs:
1. How much is capital gains tax in South Carolina?
South Carolina taxes long-term capital gains at your state income rate, up to 7%, but allows a 44% deduction on your net gain. Federal capital gains rates range from 0–20% depending on your income.
2. How do I avoid paying capital gains tax when selling my home?
Live in the home for at least two of the last five years to qualify for the IRS Section 121 exclusion — up to $250,000 single or $500,000 married in tax-free profit.
3. Can I deduct selling expenses from my capital gains?
Yes. Realtor commissions, attorney fees, transfer taxes, and even marketing expenses reduce your taxable gain. Keep detailed records for your accountant.
4. What if I sell an investment property in Myrtle Beach?
You can use a 1031 Exchange to defer taxes by reinvesting in another investment property within 180 days, following strict IRS guidelines.
5. Does South Carolina offer capital gains exemptions for seniors?
No age-based exemptions exist, but retirees can still use the federal exclusion and South Carolina’s 44% deduction on long-term capital gains.
