1031 Exchange & DST Investing in South Carolina
South Carolina conforms to federal Section 1031, so a valid exchange defers its 6.2% top state income tax on real property gains. Charleston, Greenville, and the coast draw 1031 capital, but note the state's 7% nonresident withholding.
State tax treatment of a 1031 exchange
South Carolina conforms to the federal like-kind exchange rules under Section 1031, so gain deferred federally on investment or business real property is deferred for South Carolina income tax as well, with carryover basis into the replacement property. The state's top marginal individual income tax rate is 6.2% for 2025, though South Carolina allows a substantial deduction for net long-term capital gains that lowers the effective rate on gain that is ultimately recognized.
South Carolina requires withholding on real property sales by nonresidents, generally 7% of the gain for individuals (or a percentage of the amount realized). A properly structured 1031 exchange can qualify for an exemption from this withholding, but the exemption must be documented at closing using the state's required seller affidavit.
Market snapshot
South Carolina's investment markets are led by Charleston, Greenville-Spartanburg, Columbia, and the coastal Grand Strand around Myrtle Beach. The I-85 corridor's manufacturing base, including automotive and aerospace, and the Port of Charleston drive strong industrial and logistics demand, while the coast supports hospitality and multifamily.
Industrial, multifamily, and hospitality assets lead investor interest. Rapid in-migration, port-driven trade, and manufacturing investment make South Carolina an increasingly popular destination for 1031 replacement capital.
Why 1031 & DST investors look here
- South Carolina conforms to Section 1031 and offers a capital gains deduction that reduces the effective state rate.
- Charleston's port and the I-85 manufacturing corridor drive strong industrial demand.
- A valid exchange can exempt sellers from the state's 7% nonresident withholding when properly documented.
Replacement-property options
South Carolina investors can exchange into Delaware Statutory Trust (DST) interests for passive real estate ownership, use a 721 exchange into an UPREIT, or invest gains in Qualified Opportunity Zone funds. Replacement property need not be located in South Carolina; a DST can hold assets across multiple states, allowing investors to diversify while satisfying the like-kind requirement.
Frequently asked questions
Does South Carolina tax a 1031 exchange?
Not at the time of a valid exchange. South Carolina conforms to federal Section 1031, so gain deferred federally is deferred for state income tax until a future taxable sale.
Can I exchange South Carolina property for out-of-state DSTs?
Yes. Replacement property does not have to be in South Carolina, and DST interests holding real estate in other states can qualify as like-kind.
How does South Carolina's 7% nonresident withholding affect my exchange?
South Carolina generally withholds 7% of a nonresident individual's gain, but a properly documented 1031 exchange can qualify for an exemption if the required seller affidavit is provided at closing.
Gerald F. “Jerry” Baker, III — Founder & Managing Principal, Baker 1031 Investments · FINRA Series 22 / 63 · SIE. Read full bio →
State tax treatment is general and changes frequently; this page is educational and is not tax, legal, or investment advice. Confirm current state and local rules with your own CPA and attorney. Securities offered through Aurora Securities, member FINRA/SIPC. Real estate investments involve risk, including possible loss of principal.