TL;DR: Selling a second home or investment property in South Carolina in 2026 triggers federal capital gains tax (0%, 15%, or 20% depending on income), a 7% state nonresident withholding at closing for out-of-state owners, and potential depreciation recapture up to 25% for former rentals. Understanding cost basis, holding period, and timing before listing can meaningfully reduce the bill.
The Grand Strand has spent the better part of a decade absorbing second-home and investor demand, and many of those owners are now thinking about cashing out. According to the National Association of REALTORS® (February 2026 Confidence Index), 16% of all home sales in February 2026 went to non-primary residence buyers, with 5% specifically for vacation use. That demand has supported pricing — but it has also produced appreciation that now carries a tax bill when those owners sell. If you bought a Myrtle Beach condo, rental, or second home in 2019 or 2020, the gain on paper is real, and so is the tax exposure.
Why selling a second home in South Carolina creates a 2026 tax bill
The IRS treats a primary residence very differently than every other type of real estate. Under IRS Publication 523, single filers can exclude up to $250,000 of gain on a primary home sale, and married couples filing jointly can exclude up to $500,000 — but only if the home has been used as a primary residence for at least two of the prior five years. Second homes and investment properties do not qualify.
That means the full gain on a Myrtle Beach vacation home or Horry County rental is generally subject to:
Federal capital gains tax (long-term rates apply if held more than one year)
South Carolina state income tax on the gain
Depreciation recapture if the property was rented (taxed at a higher federal rate)
Potential 3.8% Net Investment Income Tax for higher earners
According to IRS Topic No. 409, long-term capital gains for 2025 are taxed at 0%, 15%, or 20% depending on your taxable income. South Carolina taxes the gain as ordinary income but provides a 44% deduction on net long-term capital gains under guidance from the South Carolina Department of Revenue. That deduction softens the state hit — but it doesn't eliminate it.
2025 federal long-term capital gains brackets
Long-term capital gains rates by filing status (2025 tax year) — Source: IRS Topic No. 409 (Updated Feb 2026)
| Rate | Single Filer | Married Filing Jointly |
|---|---|---|
| 0% | Up to $48,350 | Up to $96,700 |
| 15% | $48,351 – $533,400 | $96,701 – $600,050 |
| 20% | Above $533,400 | Above $600,050 |
Source: IRS Topic No. 409, Capital Gains and Losses (February 2026)
For higher earners, an additional 3.8% Net Investment Income Tax applies. According to IRS Topic No. 559, the NIIT kicks in when modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly). A second-home sale can easily push a seller above those thresholds in the year of sale.
What Grand Strand sellers face in the 2026 market
Pricing matters because pricing determines the gain. According to the Coastal Carolinas Association of REALTORS® (April 2026 Monthly Indicators), the median single-family sales price in the region held at $368,000 in April 2026, flat year-over-year, while condo prices dropped 7.6% to $231,000. That divergence matters: a Myrtle Beach condo bought near the 2021–2022 peak may have a smaller gain than a single-family home bought earlier, and some condos may even close below original purchase price.
Looking at longer-term appreciation, the 2025 Annual Coastal Carolinas Report shows five-year price gains of 32% in Myrtle Beach, 40.7% in North Myrtle Beach, and 38.3% in Pawleys Island / Litchfield. That's where most of today's taxable gains sit.
The nonresident withholding nobody warns you about
Here's the curveball for out-of-state owners. According to SC Revenue Ruling #09-13, South Carolina requires the buyer to withhold tax at closing when the seller is a nonresident. The rate is:
7% of the gain (or amount realized) for individual nonresident sellers
5% for nonresident corporations
That withholding goes to SCDOR on Form I-290 within 15 days after the month of sale. The seller then files a South Carolina nonresident income tax return to reconcile — any over-withholding gets refunded. If the seller provides a Seller's Affidavit (Form I-295) stating the actual gain, the buyer can withhold on that gain figure rather than the full sale price, which often substantially reduces the cash held back at closing.
Practical implications:
Plan for the 7% withholding to come out of your closing proceeds
File a Form I-295 affidavit before closing if your actual gain is lower than the sale price
File a South Carolina nonresident tax return after closing to claim any refund
How depreciation recapture changes the math for rental owners
This is the piece most owners underestimate. If you rented out your Grand Strand property — even part-time on a short-term rental platform — depreciation deductions were available on your tax return each year. According to IRS Publication 544, depreciation taken (or allowable) must be "recaptured" at sale. Under IRS Topic No. 409, this unrecaptured Section 1250 gain is taxed at a federal rate of up to 25%, separate from your capital gain.
A few realities to plan for:
The IRS recaptures depreciation whether you actually claimed it or not
Recapture applies to the structure, not the land
Short-term rental income reported on Schedule E typically triggered depreciation
Your CPA can pull total depreciation taken from prior returns
This is one reason many Horry County investment-property sellers explore a 1031 exchange, which can defer both capital gains and recapture if proceeds are reinvested into another qualifying property within the IRS's strict timelines.
Strategies that may reduce your tax exposure
There are legitimate ways to lower the tax owed when selling a second home in South Carolina. Each has rules, so coordinate with a CPA or tax attorney.
Document your cost basis fully. Purchase price plus capital improvements (new roof, HVAC, additions, hurricane shutters) reduces taxable gain. Closing costs at purchase may also add to basis.
Track selling costs. Agent commissions, title fees, and SC deed-recording costs reduce the gain.
Consider a 1031 exchange. Per the IRS Like-Kind Exchange Fact Sheet, you have 45 days to identify a replacement and 180 days to close.
Time the sale. Holding longer than 12 months locks in long-term rates instead of ordinary income rates.
File the Seller's Affidavit (I-295) if you're a nonresident — it caps withholding at your actual gain rather than the gross sale figure.
Convert to primary residence. Living in the property as your primary home for two of the next five years may unlock partial primary-residence exclusion under Publication 523, though depreciation recapture still applies for any rental period.
For sellers thinking about how this fits into broader wealth planning, our estate planning guide for Myrtle Beach homeowners covers how property transfers interact with long-term planning, and our SALT deduction overview addresses related federal tax considerations for Grand Strand owners. If you'd like a walk-through of the local listing process, our Seller's Guide covers what to expect from listing to closing.
Selling a second property is rarely a one-decision event — it's a sequence of timing, basis, and reinvestment choices that interact. The earlier you start, the more options stay on the table. If you're weighing the sale of a Myrtle Beach second home or Horry County rental and want a clear-eyed read on current market positioning before you talk numbers with your CPA, reach out to start the conversation. We'll walk you through where comparable properties are pricing today.
Frequently Asked Questions
Do I owe South Carolina state tax when I sell a second home in Myrtle Beach? Yes. According to the South Carolina Department of Revenue, capital gains are taxed as ordinary state income in South Carolina, with a 44% deduction allowed on net long-term capital gains. That means roughly 56% of your long-term gain is subject to SC income tax. If you're a nonresident, SC Revenue Ruling #09-13 requires the buyer to withhold 7% of the gain (or amount realized) at closing on Form I-290. You'll reconcile through a South Carolina nonresident income tax return and recover any over-withholding.
Does the $250,000/$500,000 home sale exclusion apply to my Grand Strand vacation home? Generally, no. Per IRS Publication 523, the primary-residence exclusion requires you to have owned and used the home as your primary residence for at least two of the five years before the sale. A vacation home or rental does not meet that test. If you convert the property into your primary home and live there for the required two-year period, you may qualify for a partial exclusion — but depreciation taken during any rental period remains subject to recapture.
What is depreciation recapture and how is it calculated in 2026? If your South Carolina property was used as a rental, IRS Publication 544 requires you to recapture the depreciation deductions claimed (or allowable) when you sell. This unrecaptured Section 1250 gain is taxed at a federal rate of up to 25%, separate from your capital gains tax. The amount is calculated based on total depreciation taken over your ownership period. Even if you never claimed depreciation, the IRS treats it as taken — so short-term rental owners who skipped this deduction may still owe recapture.
What is the Net Investment Income Tax and will it hit my sale? According to IRS Topic No. 559, the 3.8% Net Investment Income Tax applies when modified adjusted gross income exceeds $200,000 for single filers or $250,000 for married filing jointly. A real estate sale gain counts as net investment income. A large gain from a Myrtle Beach second-home sale can easily push a seller above the threshold for the year of sale, so factor NIIT into your projected tax bill before listing.
Can a 1031 exchange help me avoid taxes on my Horry County rental sale? A 1031 exchange, governed by the IRS Like-Kind Exchange rules, defers both capital gains and depreciation recapture by reinvesting proceeds into a like-kind investment property. Strict timelines apply: you must identify a replacement within 45 days and close within 180 days. The replacement must be investment or business-use real estate — a personal vacation home doesn't qualify. A qualified intermediary must hold the funds. The strategy defers, not eliminates, the tax.
Do I need a real estate attorney to close on a second-home sale in South Carolina? Yes. According to the South Carolina Bar Association, South Carolina is an attorney closing state — a licensed SC real estate attorney must conduct the closing for any real estate transaction. This applies to primary residences, second homes, and investment properties equally. The attorney handles title work, prepares closing documents, and disburses funds. For nonresident sellers, the closing attorney typically coordinates the I-290 withholding remittance to SCDOR. Plan for attorney fees as part of your closing costs.
Sources
IRS Topic No. 409, Capital Gains and Losses: https://www.irs.gov/taxtopics/tc409
IRS Topic No. 559, Net Investment Income Tax: https://www.irs.gov/taxtopics/tc559
IRS Publication 523, Selling Your Home: https://www.irs.gov/publications/p523
IRS Publication 544, Sales and Other Dispositions of Assets: https://www.irs.gov/publications/p544
IRS Like-Kind Exchanges (1031) Fact Sheet: https://www.irs.gov/businesses/small-businesses-self-employed/like-kind-exchanges-real-estate-tax-tips
South Carolina Department of Revenue (SC Revenue Ruling #09-13, I-290 nonresident withholding): https://dor.sc.gov/
South Carolina Bar Association: https://www.scbar.org/
Coastal Carolinas Association of REALTORS® (April 2026 Monthly Indicators; 2025 Annual Report): https://www.ccarsc.org/pages/marketstats/
National Association of REALTORS® (February 2026 Confidence Index): https://www.nar.realtor/
