Capital Gains and 1031 Exchanges for Charleston Sellers

Thinking about selling a Charleston property and wondering what you will owe in taxes? You are not alone. Between capital gains rules, the home sale exclusion, South Carolina’s deductions, and 1031 exchanges, it can feel complex. In this guide, you will learn the essentials that matter for 2025 and how to plan a smooth, tax‑smart sale in Charleston. Let’s dive in.

Capital gains basics for 2025

Primary residence exclusion

If you sell your main home and meet the ownership and use tests, you can generally exclude up to $250,000 of gain if single or $500,000 if married filing jointly. The IRS details the tests and how to figure gain in Publication 523, including how prior rental or business use affects your numbers (see IRS Publication 523). If you claimed depreciation for any rental or business use after May 6, 1997, that portion is not excluded and must be recaptured.

Investment property rates and depreciation

If the property is an investment or rental, long‑term gains are taxed at federal long‑term capital gains rates. For 2025, the brackets are indexed for inflation, with the 0 percent bracket for single filers up to roughly $48,350 and 20 percent at higher incomes (see SmartAsset’s capital gains overview). Depreciation recapture on real property can be taxed up to 25 percent, and Publication 544 explains how that works and how a 1031 exchange can defer it (see IRS Publication 544).

Net Investment Income Tax

High earners may also owe the 3.8 percent Net Investment Income Tax (NIIT) on the lesser of net investment income or the amount their modified adjusted gross income exceeds set thresholds. The IRS explains who owes NIIT and how it is calculated (see IRS NIIT Q&A).

1031 exchange essentials

What qualifies today

A Section 1031 exchange lets you defer capital gains and depreciation recapture when you exchange investment or business real property for other like‑kind real property. Since recent changes, 1031 applies to real property only, not personal property (IRS guidance on like‑kind real property).

Timing and identification rules

Two timelines are critical. You must identify your replacement property within 45 days and close on it within 180 days of transferring your relinquished property. The IRS strictly enforces these deadlines, with limited exceptions for disaster relief (IRS timing rules).

Qualified intermediary role

To maintain deferral, you cannot receive the sale proceeds yourself. A qualified intermediary (QI) must hold the funds, document the exchange, and coordinate deadlines. The exchange can fail if you have constructive receipt of cash, so involve a reputable QI before you close (see IRS Publication 544).

Boot and common pitfalls

Any cash or non‑qualifying property you receive is called boot, and it is taxable up to the amount received. Watch identification rules, related‑party transactions, and timing gaps that can trigger recognition. Reverse or construction exchanges are possible but add cost and complexity (see IRS Publication 544).

Mixing the home exclusion and 1031

Section 121 covers a primary residence and 1031 covers investment property. In limited cases, when a former residence is converted to rental, part of the gain might be excluded while another part is deferred, but this requires careful allocation and documentation (see IRS Publication 523).

South Carolina and Charleston costs

State income tax and 44 percent deduction

South Carolina taxes capital gains as part of state taxable income, but it offers a 44 percent deduction for net capital gain, which can materially lower the state bill. You will still apply the state’s rate schedule to the remaining income. See SC Code §12‑6‑1150 for the deduction language (SC Code §12‑6‑1150).

SC deed‑recording fee and local charges

At closing, South Carolina imposes a deed‑recording fee calculated at $1.85 per $500 of the consideration, with the grantor primarily liable. Charleston County also charges document recording fees, such as flat and per‑page fees (overview of SC deed‑recording fee). For practical recording details, check the Charleston County Register of Deeds for current formats, fees, and e‑recording options (Charleston County recording info).

Nonresident seller withholding

If you are a nonresident selling South Carolina real estate, the state may require withholding at closing unless you qualify for an exemption or reduction. Coordinate early with your closing attorney or agent to avoid surprises (overview of SC practices for nonresidents).

Seller checklist

Before you list

• Estimate your gain: sale price minus selling costs minus adjusted basis, including improvements and any depreciation claimed. Use IRS worksheets for accuracy (IRS Publication 523).
• Confirm if the $250k or $500k home sale exclusion applies and whether any rental or business use affects it.
• If the property is an investment, decide early if a 1031 exchange fits your plan. Interview QIs and outline your replacement options to meet the 45 and 180 day timelines (IRS timing rules).

While under contract

• If doing a 1031, route all proceeds to your QI and complete identification in writing within 45 days (see IRS Publication 544).
• If you are a nonresident, address any South Carolina withholding forms well before closing.
• Confirm the deed‑recording fee and Charleston County recording costs, and budget accordingly (SC deed‑recording fee).

After closing

• Report the sale correctly on your federal and South Carolina returns, applying the SC 44 percent net capital gain deduction where eligible (SC Code §12‑6‑1150). If you exchanged, file Form 8824 to report the 1031 transaction (see IRS Publication 544).

You deserve advice that fits your goals, timeline, and property type. If you are weighing a straight sale versus a 1031 exchange, or you want a clear estimate of net proceeds in Charleston, reach out to schedule a friendly, no‑pressure consult with Nicole Lemieux.

FAQs

How do capital gains work when selling a Charleston primary residence?

• If you meet IRS ownership and use tests, you may exclude up to $250,000 of gain if single or $500,000 if married filing jointly, but any depreciation taken for rental or business use after May 6, 1997 is taxable and not excluded (IRS Publication 523).

What are the key 1031 exchange deadlines for Charleston sellers?

• You must identify replacement property within 45 days of transferring the relinquished property and acquire it within 180 days, using a qualified intermediary to hold proceeds and document the exchange (IRS timing rules).

How does South Carolina’s 44 percent deduction affect my state taxes?

• South Carolina allows a deduction equal to 44 percent of net capital gain, which reduces the portion of gain subject to state income tax after you compute state taxable income (SC Code §12‑6‑1150).

What local closing fees should I expect in Charleston County?

• Expect the state deed‑recording fee of $1.85 per $500 of consideration plus Charleston County recording charges, such as flat and per‑page fees, based on the documents recorded (SC deed‑recording fee overview).

Can I use a 1031 exchange to avoid capital gains tax forever?

• A 1031 exchange defers tax rather than eliminates it, and tax becomes due if you later receive cash or non‑qualifying property; long‑term planning and continued exchanges can extend deferral (see IRS Publication 544).