1031 Exchange Rules in South Carolina

Last reviewed: June 2026. State rules change. Verify current forms before closing.

What Is Different in South Carolina

South Carolina handles 1031 exchanges with an affidavit at the closing table plus a distinctive procedure that routes the withholding decision through your qualified intermediary. The seller signs Form I-295 and uses item 16 — which has separate choices for a simultaneous fully deferred exchange, a partial exchange, and a deferred exchange through a QI. For deferred exchanges, the buyer hands the potential withholding to the QI, who pays the state only if the exchange fails. Done right, a fully qualifying exchange means no Form I-290 is ever filed and no payment is ever made.

Does South Carolina Conform to IRC Section 1031?

Yes. South Carolina follows the federal like-kind exchange rules for real property. A 1031 exchange is an IRS-approved way to sell investment property and buy replacement property without paying tax on the gain right away. If your exchange qualifies for federal deferral, South Carolina defers its income tax too. New to exchanges? Start with our 1031 exchange guide.

Your replacement property can be in any state, and South Carolina has no claw-back or annual tracking of deferred gain afterward.

South Carolina Tax Rate on Real Estate Gains

South Carolina’s top income tax rate is 6.00% for 2026. On a $500,000 gain, that is roughly $30,000 of state tax in addition to the federal bill. A qualifying exchange may defer all of it.

Nonresident Withholding at Closing

Under S.C. Code 12-8-580, buyers must withhold from nonresident sellers:

• Individuals, partnerships, trusts, and estates: the maximum SC individual income tax rate — 6.0% for 2026 — applied to the recognized gain (or to the full amount realized if the seller provides no affidavit).
• Corporations and other nonresident entities: 5%.
• Cap: withholding is limited to the net proceeds if the required amount would exceed them.

The buyer remits with Form I-290. Note for anyone comparing charts: the statute now keys to the maximum individual rate, so the 7% figure on older QI charts is stale — it is 6.0% in 2026. Importantly, the statute’s definition of “sale” excludes tax-exempt and tax-deferred transactions (other than installment sales), which is what opens the door for exchanges.

How 1031 Exchangers Claim the Exemption: Form I-295, Item 16

The seller’s affidavit, Form I-295, is signed at closing and retained by the buyer. Item 16 is the like-kind exchange section, with separate choices for:

• Simultaneous exchange, fully deferred: no withholding, no I-290.
• Partial exchange: withholding applies to the recognized gain.
• Deferred exchange through a qualified intermediary: the Rev. Rul. #09-13 procedure below applies.

The Deferred-Exchange QI Procedure (SC Rev. Rul. #09-13)

For a delayed exchange, South Carolina lets the withholding ride with the exchange rather than the closing:

• The buyer retains the I-295 affidavit and delivers Form I-290 plus the potential withholding amount to the qualified intermediary — the independent party that holds your sale proceeds during an exchange.
• If the exchange fully qualifies: no I-290 is filed and no payment is made. The funds flow into your replacement purchase.
• If the exchange fails: the QI files and pays, due by the 15th day of the month after the failure becomes apparent — the earlier of abandonment of the exchange or expiration of the exchange period.
• If the exchange is partial: the QI submits a modified I-290 with the revised amount realized, the recognized gain, and the actual withholding.

This procedure makes your QI selection a South Carolina compliance decision, not just a federal one. WealthBuilder 1031 administers the I-290/withholding mechanics as part of its exchange documentation.

Federal Taxes Still Apply

A South Carolina exchange defers two layers: federal and state. Here is what a taxable sale looks like without an exchange, using round numbers.

Example: $1,000,000 sale of a South Carolina rental. Original purchase $600,000, with $100,000 of depreciation taken, so the adjusted basis is $500,000 and the total gain is $500,000.

Figures are illustrative and rounded. Your rates depend on income, filing status, and basis, and South Carolina allows a partial deduction for long-term capital gains that can lower the effective rate. A qualifying 1031 exchange may defer the entire amount. Run your own numbers with our 1031 exchange calculators, then confirm them with your tax advisor.

Risks and Things That Go Wrong in South Carolina Exchanges

• Skipping the affidavit. With no I-295, the buyer must withhold on the full amount realized, not just the gain. The affidavit is what limits — or eliminates — the withholding.
• Wrong item 16 box. Simultaneous, partial, and deferred exchanges each have distinct mechanics. Checking the wrong one creates either an underwithholding problem for the buyer or an unnecessary payment for you.
• A QI unfamiliar with Rev. Rul. #09-13. In a deferred exchange, the QI receives the I-290 and the potential withholding and must act on a deadline if the exchange fails. A QI that does not know this procedure exposes the buyer.
• Assuming the exemption is automatic. Do not assume a 1031 eliminates all process requirements — the affidavit and, for deferred exchanges, the QI procedure still must be followed.
• Failed deadlines. The federal 45-day identification and 180-day completion rules apply with no state extensions — and in South Carolina a failed exchange also triggers the QI’s payment deadline. See the IRS rules for 1031 exchanges.
• Deferral is not elimination. The IRS and South Carolina will tax the deferred gain when you eventually cash out. Plan the exit, not just the exchange.

South Carolina 1031 Exchange FAQs

Does South Carolina withhold on my sale if I do a 1031 exchange?
Not if the exchange fully qualifies. You sign Form I-295 and complete item 16; in a deferred exchange, the buyer gives Form I-290 and the potential withholding to your QI, who pays only if the exchange fails.

What rate does South Carolina withhold?
The maximum individual rate — 6.0% for 2026 — on recognized gain for individuals, partnerships, trusts, and estates; 5% for corporations. Older charts showing 7% are out of date.

What happens if my deferred exchange fails?
Your QI files Form I-290 and pays the withholding by the 15th day of the month after the failure becomes apparent — the earlier of abandoning the exchange or the exchange period expiring.

What if I receive some boot?
The QI submits a modified I-290 reflecting the revised amount realized, the recognized gain, and the actual withholding on that recognized portion.

Does South Carolina track my deferred gain after the exchange?
No. South Carolina has no claw-back rule and no annual reporting tied to deferred exchange gain.

Sources

• S.C. Code Section 12-8-580
• SC Revenue Ruling #09-13
• SCDOR Form I-295 (Seller’s Affidavit) and Form I-290
• Tax Foundation, State Individual Income Tax Rates and Brackets, 2026

Want to learn more? Our 1031 exchange guide covers the full process from sale to replacement. Ready to start a South Carolina exchange? WealthBuilder 1031 is attorney-owned, serves all 50 states, and charges a flat $1,000 fee. Start at WealthBuilder1031.com or call 888-508-1901.

This page does not constitute legal or tax advice. Consult your attorney and tax advisor about your specific situation.

Ready to start your South Carolina 1031 exchange? WealthBuilder 1031 acts as your qualified intermediary for a flat $1,000 fee, $750 at your sale and $250 at your purchase. See our South Carolina 1031 exchange services to get started.