South Carolina Real Estate Capital Gains Tax Explained

South Carolina Real Estate Capital Gains Tax Explained

by | Nov 18, 2022 | Home Ownership Education

The reality is that there are many tax implications when purchasing or selling real estate in South Carolina. One area where real estate investors and homeowners can sometimes find themselves afoul is the capital gains tax – a complicated subject matter, which has so far been difficult for most people to understand without professional help from someone who knows what they’re doing! However, don’t worry because we’ve laid out this guide on how you should proceed with your next investment property purchase wisely as well as understanding other potential pitfalls before it’s too late…

Before we dive in, we always recommend speaking with your accountant, CPA, or legal tax-based professional for a clear understanding of your specific situation.

Understanding Federal Capital Gains.

Capital Gains tax usually applies in one of two scenarios federally:

1. You sell real estate that is NOT considered your personal property.
2. The sale of your primary residence results in a taxable gain of $250,000+ for single filers or $500,000+ for joint filers.

Please note, some exclusions may apply. As an example, folks in the military on extended duty may elect to suspend the 5 year deadline for up to 10 years.

How to calculate a Capital Gain or Capital Loss.

The three-step process for calculating capital gains is as follows:

1. Determine your basis. This is the original purchase price plus fees plus improvements.
2. Determine your realized amount. This is the sales price minus fees (your net).
3. Determine your Gain or Loss by subtracting your realized amount from your basis.

Understanding State of South Carolina Capital Gains Tax.

If you’re looking to sell your home in South Carolina or consider buying an investment property here, it’s important to understand the state’s capital gains tax.

South Carolina’s long-term Capital Gains Tax Rate is 7% of your gain (see above to calculate this on your own). That being said, 44% of the capital gain is exempt. In other words, you’re actually paying 3.92% of your realized gain to South Carolina. In other words, if you have a gain of $100,000 then you’ll pay $3,920 in real estate capital gains tax (3.92% of $100,000).

Your content goes here. Edit or remove this text inline or in the module Content settings. You can also style every aspect of this content in the module Design settings and even apply custom CSS to this text in the module Advanced settings.

Can You Avoid or Prevent Capital Gains Tax?

Yes and no. Section 121 of the tax code for South Carolina allows single filers to exempt the first $250,000 gain from being subject to capital gains tax ($500,000 if you file jointly). But that’s just for primary residences.

Any sale of real estate other than your primary residence should consider a 1031 Tax-Deferred Exchange. This process allows you to “defer” paying capital gains tax by rolling your taxable gain into another, like-kind property. You can’t “eliminate” capital gains tax, but you can “put if off” by rolling your proceeds into another property.

This is not nearly as complex a scenario as people might be led to believe, but there are some details you’ll need to be aware of. The key to success is to start with the right team (Realtor, Closing Attorney, and a Qualified Intermediary) to help point you in the right direction.

Follow me on Social Media
👋 Instagram 👉 https://www.instagram.com/joshfinigan/
👋 Facebook 👉 https://www.facebook.com/TheFiniganGroup/
🎥 WATCH NEXT
👉 Subscribe for more Videos: https://www.youtube.com/channel/UCytj…
👉 Search for Homes For sale in the Greater Charlotte Area at https://www.ChooseCharlotteHomes.com
🔻CONTACT INFO🔻
🏠 WANT TO TALK REAL ESTATE? Fill out this contact form here https://thefinigangroup.com/contact-us/
🏠 SEARCH FOR HOMES FOR SALE IN THE GREATER CHARLOTTE AREA AT t https://www.ChooseCharlotteHomes.com
🏠 FREE HOME VALUATION https://thefinigangroup.com/home-value/
✔️ CHECK ME OUT ON GOOGLE https://g.page/TheFiniganGroup?share
Josh Finigan
The Finigan Group
Realtor @ eXp Realty
📞C: 704-631-3977
📧Josh@thefinigangroup.com
🖥TheFiniganGroup.com

The Big Question: Should You Move or Renovate?

The Big Question: Should You Move or Renovate?

by | Oct 18, 2021 | Home Sellers and Buyers

The last 18 months changed what many buyers are looking for in a home. Recently, the American Institute of Architects released their AIA Home Design Trends Survey results for Q3 2021. The survey reveals the following:

  • 70% of respondents want more outdoor living space
  • 69% of respondents want a home office (48% wanted multiple offices)
  • 46% of respondents want a multi-function room/flexible space
  • 42% of respondents want an au pair/in-law suite
  • 39% of respondents want an exercise room/yoga space

If you’re a homeowner who wants to add any of the above, you have two options: renovate your current house or buy a home that already has the spaces you desire. The decision you make could be determined by factors like:

  1. A possible desire to relocate
  2. The difference in the cost of a renovation versus a purchase
  3. Finding an existing home or designing a new home that has exactly what you want (versus trying to restructure the layout of your current house)

In either case, you’ll need access to capital: the funds for the renovation or the down payment your next home would require. The great news is that the money you need probably already exists in your current home in the form of equity.

Home Equity Is Skyrocketing

The record-setting increases in home prices over the last two years dramatically improved homeowners’ equity. The graph below uses data from CoreLogic to show the average home equity gain in the first quarter of the last nine years:

home equity

Odeta Kushi, Deputy Chief Economist at First American, quantifies the amount of equity homeowners gained recently:

“Remember U.S. households own nearly $35 trillion in owner-occupied real estate, just over $11 trillion in debt, and the remaining ~$24 trillion in equity. In inflation adjusted terms, homeowners in Q2 had an average of $280,000 in equity- a historic high.”

As a homeowner, the money you need to purchase the perfect home or renovate your current house may be right at your fingertips. However, waiting to make your decision may increase the cost of tapping that equity.

If you decide to renovate, you’ll need to refinance (or take out an equity loan) to access the equity. If you decide to move instead and use your equity as a down payment, you’ll still need to mortgage the remaining difference between the down payment and the cost of your next home.

Mortgage rates are forecast to increase over the next year. Waiting to leverage your equity will probably mean you’ll pay more to do so. According to the latest data from the Federal Housing Finance Agency (FHFA), almost 57% of current mortgage holders have a mortgage rate of 4% or below. If you’re one of those homeowners, you can keep your mortgage rate under 4% by doing it now. If you’re one of the 43% of homeowners with a mortgage rate over 4%, you may be able to do a cash-out refinance or buy a more expensive home without significantly increasing your monthly payment.

First Step: Determine the Amount of Equity in Your Home

If you’re ready to either redesign your current house or find an existing or newly constructed home that has everything you want, the first thing you need to do is determine how much equity you have in your current home. To do that, you’ll need two things:

  1. The current mortgage balance on your home
  2. The current value of your home

You can probably find the mortgage balance on your monthly mortgage statement. To find the current market value of your house, you can pay several hundreds of dollars for an appraisal, or you can contact a local real estate professional who will be able to present to you, at no charge, a professional equity assessment report.

Bottom Line

If the past 18 months have refocused your thoughts on what you want from your house, now may be the time to either renovate or make a move to the perfect home.