Capital gains tax is a tax on income received from the sale of an asset—such as a business, real estate, your home, stocks, bonds, coin collections, and jewelry. Capital gains tax is paid on the financial gain between the amount you paid for (or invested to build) the asset, and the amount for which it is sold.

The rate (percentage) paid as capital gains tax has traditionally been lower than the rate (percentage) paid on income tax. And the Internal Revenue Service (IRS) has traditionally taxed long term gains differently than short term gains—with the distinction based on how long the taxpayer owned or held the asset.

In South Carolina, as in other states, capital gains tax applies to the profit made from selling an asset. The tax rate for capital gains can be lower than the regular income tax rate. The IRS defines long-term capital gains as profits from assets held for more than one year, and these are taxed at a lower rate than short-term gains, which are from assets held for less than a year. South Carolina follows the federal tax treatment for capital gains, meaning that the state does not impose a separate capital gains tax but rather taxes capital gains as part of the state income tax. The state conforms to federal tax law for the definition and treatment of capital gains, so taxpayers in South Carolina will pay state income tax on their capital gains at the same rates as their other income, subject to any state-specific deductions or exemptions that may apply.