SC Capital Gains Tax for Seniors Selling a Home 2026 — Hereda Team at Carolina Crafted Homes

Tax & FinanceHome SellingMyrtle Beach Real Estate

June 23, 2026

TL;DR: South Carolina does not offer a separate capital gains tax exemption for older homeowners. However, most sellers who qualify under the federal two-year ownership-and-use rule can exclude up to $250,000 — or $500,000 if married filing jointly — from taxable gain on a primary residence sale. South Carolina then applies its own 44% long-term capital gains deduction to any remaining taxable gain, which can significantly reduce the state tax owed.

Do Seniors in South Carolina Pay Capital Gains Tax When Selling Their Home?

It is one of the most common tax questions in real estate, and it comes with a frustrating non-answer from most sources: "it depends." But for homeowners in the Myrtle Beach area and across South Carolina who are weighing a sale after years — or decades — of appreciation, the real answer is considerably more useful than that.

The short version is this: age does not determine your capital gains tax liability in South Carolina. What determines it is how long you have owned the home, whether you have lived in it as your primary residence, and how much gain you have accumulated. The rules apply the same way regardless of the seller's age.

That said, the overlap between long-term homeownership and qualified exclusion rules means many sellers who have lived in their homes for years are in a strong position to minimize — or eliminate — capital gains tax entirely. Understanding those rules is where this gets worth your time.

The Federal Section 121 Exclusion: What the Two-Year Rule Actually Means

The question that keeps surfacing in search data is specific: what does the two-year rule mean exactly when selling a primary residence in South Carolina? Here is the answer.

Under IRS Section 121, a homeowner can exclude up to $250,000 of capital gain from the sale of a primary residence — $500,000 if married and filing jointly — from federal taxable income. To qualify, the seller must meet two tests:

Ownership test: You must have owned the home for at least two of the five years immediately before the sale.
Use test: You must have used the home as your primary residence for at least two of those same five years.

These two years do not have to be consecutive. They can be any 24 months within that five-year lookback window. According to IRS Publication 523 (Selling Your Home), both tests must be satisfied independently, but they can overlap. So a seller who bought a home, rented it for a year, then moved in and lived there for two years would still qualify — as long as the two-year use period occurred within five years of the sale.

The exclusion can only be claimed once every two years. If a seller used the exclusion on a prior home sale within the past two years, they would not be eligible again on a new sale until that period lapses.

For sellers in Horry County and across the Grand Strand, this matters. According to the 2025 Annual Report on the Coastal Carolinas Housing Market (CCAR MLS, January 2026), the median Horry County home price rose 32.2% between 2021 and 2025 — from $234,500 to $310,000. Sellers who purchased earlier in that cycle and are now considering a sale may be sitting on gains that are fully sheltered under Section 121 without owing a dollar in federal capital gains tax.

How South Carolina Taxes Home Sale Gains — and the 44% Deduction

Once the federal exclusion has been applied, whatever taxable gain remains is subject to South Carolina state income tax. South Carolina does not have a separate capital gains tax rate — gains are taxed as ordinary income at the state level, subject to the state's top marginal individual income tax rate.

However, South Carolina provides a meaningful deduction for long-term capital gains. Under SCDOR guidance on the individual income tax, taxpayers may deduct 44% of net long-term capital gains from South Carolina taxable income. This deduction applies to gains from assets held longer than one year, including real property.

The practical effect is significant. If a seller has $100,000 in gain remaining after applying the federal Section 121 exclusion, the 44% deduction reduces the South Carolina taxable portion to $56,000. That reduced amount is then taxed at SC's applicable individual income tax rate, not the full gain amount.

According to the South Carolina Department of Revenue (SCDOR), the 44% deduction is available to all South Carolina individual income taxpayers — it is not restricted by age, income level, or filing status. Sellers who have held their property for more than one year and who have remaining gain after federal exclusions can access this deduction on their SC1040 individual income tax return. Verify current rates and eligibility with a licensed tax professional, as rules are subject to change.

Nonresident Sellers: An Additional Layer at Closing

For sellers who have relocated out of South Carolina before their sale closes, there is one more mechanism to understand: nonresident seller withholding.

Under SCDOR Form I-290 (Nonresident Real Estate Withholding, Rev. 7/17/23), any buyer purchasing real property from a nonresident seller is required to withhold and remit a portion of the proceeds to SCDOR at closing. The withholding amount is calculated using South Carolina's top marginal individual income tax rate applied to either the gross gain (if the seller provides an affidavit of gain via Form I-295) or the total amount realized.

This withholding is not a final tax — it is a prepayment against the seller's SC income tax liability. Nonresident sellers then file an SC1040 income tax return, report the capital gain, apply eligible deductions (including the 44% long-term deduction), and receive credit for amounts withheld. If withholding exceeds the actual tax owed, the seller receives a refund.

The key point: the I-290 withholding process does not change the underlying tax calculation. Sellers who qualify for the federal Section 121 exclusion reduce their taxable gain before SC calculations apply. The withholding is simply the mechanism by which SC collects its share at the time of sale rather than waiting for annual tax filing.

What Long-Term Myrtle Beach Appreciation Means for Tax Planning

The Grand Strand's appreciation over the past five years makes this conversation urgent for many sellers. The CCAR MLS Monthly Indicators (April 2026, current as of May 10, 2026) show a 12-month average single-family median sales price of $365,000 across the Coastal Carolinas market. Sellers who purchased before the 2020–2022 appreciation spike may be looking at six-figure gains.

A seller who bought a Myrtle Beach home in 2017 for $200,000 and sells today near the current median would have accumulated gains well in excess of $100,000. Depending on their filing status and how long they've owned the property, the Section 121 exclusion could shelter the entire gain. Any remainder would then be eligible for the SC 44% deduction.

  
      SC Primary Residence Sale: Simplified Tax Flow (2026)  Step What Happens Result 
Calculate total gain Sale price minus adjusted basis (purchase price + improvements) Gross capital gain 
Apply federal Section 121 exclusion Up to $250K (single) or $500K (married filing jointly) excluded if ownership and use tests met Remaining federal taxable gain 
Apply SC 44% long-term deduction 44% of net long-term gain deducted from SC taxable income (property held 1+ year) Reduced SC taxable gain 
Pay SC income tax on remainder SC top marginal individual income tax rate applied to reduced gain Final SC tax owed 
Nonresident seller: credit I-290 withholding Amount withheld at closing credited against final SC tax liability on SC1040 Net tax due or refund 
  
  

SC Primary Residence Sale: Simplified Tax Flow (2026)
Step	What Happens	Result
1. Calculate total gain	Sale price minus adjusted basis (purchase price + improvements)	Gross capital gain
2. Apply federal Section 121 exclusion	Up to $250K (single) or $500K (married filing jointly) excluded if ownership and use tests met	Remaining federal taxable gain
3. Apply SC 44% long-term deduction	44% of net long-term gain deducted from SC taxable income (property held 1+ year)	Reduced SC taxable gain
4. Pay SC income tax on remainder	SC top marginal individual income tax rate applied to reduced gain	Final SC tax owed
5. Nonresident seller: credit I-290 withholding	Amount withheld at closing credited against final SC tax liability on SC1040	Net tax due or refund

Source: IRS Publication 523 (Selling Your Home); SCDOR Individual Income Tax guidance; SCDOR Form I-290 Instructions (Rev. 7/17/23). Consult a licensed tax professional for your specific situation.

Selling a home in Myrtle Beach or anywhere along the Grand Strand after years of appreciation raises real tax questions — and the answers depend on the details of your specific situation. If you're weighing the timing, structure, or next steps of a home sale in Horry County, the team at Carolina Crafted Homes works closely with buyers and sellers navigating this market. Get in touch to start the conversation.

FAQ SECTION

1. Does South Carolina have a special capital gains tax exemption for older homeowners?

No. South Carolina does not have an age-based capital gains exemption for home sellers. The state follows the same framework as the federal system: eligibility for exclusions and deductions is based on ownership duration, use of the property as a primary residence, and how long the asset was held — not the seller's age. All South Carolina individual taxpayers who qualify for the federal Section 121 exclusion may apply it, and all long-term capital gain sellers may access the state's 44% deduction. Consult a licensed tax professional for your specific situation.

2. What exactly is the two-year rule for avoiding capital gains on a home sale in South Carolina?

The two-year rule refers to the federal Section 121 ownership and use tests. To exclude gain from a primary residence sale, you must have owned the home for at least two of the five years before the sale and lived in it as your primary residence for at least two of those same five years. According to IRS Publication 523, the two years of use do not need to be continuous — they can be any 24 months within that five-year window. If both tests are met, up to $250,000 in gain (or $500,000 for married couples filing jointly) can be excluded from federal taxable income. South Carolina follows federal adjusted gross income as its starting point, so the exclusion flows through to your SC return as well.

3. How much of a home sale gain is taxable in South Carolina after the federal exclusion?

Any gain remaining after the federal Section 121 exclusion is applied flows into South Carolina taxable income. South Carolina then allows a 44% deduction on net long-term capital gains — meaning gains from assets held more than one year, including real property. Only the remaining 56% of the net gain is subject to South Carolina income tax at the applicable individual rate. Verify current rates with a licensed tax professional, as tax law is subject to change.

4. I moved out of South Carolina before selling my home. Does that change my tax situation?

It adds a step at closing. Under South Carolina's nonresident seller withholding rules (SCDOR Form I-290), the buyer must withhold a portion of the sale proceeds and remit them to SCDOR at closing. The withholding amount is calculated using SC's top marginal individual income tax rate, applied to either the gross gain or the amount realized. This is not a final tax — it is a prepayment. Nonresident sellers file an SC1040 income tax return, report the gain, apply eligible deductions, and receive credit for amounts withheld. If your actual tax liability is lower than what was withheld, you receive a refund. Consult a licensed tax or real estate professional for guidance specific to your situation.

5. Can a married couple exclude $500,000 in gain on a Myrtle Beach home sale?

Yes, if both spouses meet the eligibility tests. Under IRS Publication 523, a married couple filing jointly can exclude up to $500,000 of gain from the sale of a primary residence, provided at least one spouse meets the ownership test (owned the home for two of the five years before the sale) and both spouses meet the use test (each lived in the home as a primary residence for at least two of those five years). Only one spouse needs to satisfy the ownership test. If only one spouse meets the use test, the maximum exclusion is $250,000. Always verify your specific situation with a licensed tax professional.

6. What if my gain exceeds the Section 121 exclusion limit? How much will I owe in South Carolina?

Any gain above the exclusion threshold is taxable at both the federal and state levels. On the federal side, long-term capital gains rates under IRS Topic No. 409 are 0%, 15%, or 20% depending on taxable income and filing status. At the state level, South Carolina allows a 44% deduction on net long-term gains per SCDOR guidance, which reduces the taxable portion to 56% of your remaining gain. That reduced amount is then taxed at South Carolina's top marginal individual income tax rate. Because the interaction between federal adjusted gross income and state deductions can be complex, work with a licensed tax professional before closing to model the actual liability in your situation.