South Carolina Step-Up in Basis Guide

Step up in basis rules can save South Carolina heirs thousands of dollars in capital gains tax. When you inherit property, the tax basis of that property resets to its fair market value on the date of the decedent's death. Decades of appreciation are effectively erased for tax purposes, and you owe capital gains tax only on any increase in value after you inherit.

Understanding how the step-up works matters whether you plan to keep inherited property, sell it, or pass it on. This guide explains the rules, shows you how to calculate your new basis, and covers strategies that lower your tax bill.

What Is Step-Up in Basis?

When someone buys an asset, they hold a "tax basis" in it, usually equal to what they paid. When they sell, they owe capital gains tax on the difference between the sale price and their basis.

The Problem Without Step-Up

Imagine your mother bought a house in Greenville in 1990 for $85,000. When she passed away in 2025, the house was worth $340,000. Without the step-up rule, if she had given you the house as a gift during her lifetime, your basis would have been her original $85,000, called "carryover basis." Selling for $340,000 would mean $255,000 in taxable capital gains.

How Step-Up Fixes This

Because you inherited the house instead of receiving it as a gift, your basis steps up to the fair market value on the date of death: $340,000. If you sell for $340,000, your capital gain is $0. Even if you sell a year later for $355,000, your taxable gain is only $15,000 instead of $270,000.

The Legal Foundation

The step-up comes from Internal Revenue Code Section 1014, which sets the basis of property acquired from a decedent at its fair market value on the date of death. It applies to property that passes through:

• Probate
• A revocable living trust
• Joint tenancy with right of survivorship, for the decedent's share
• A payable-on-death or beneficiary designation

South Carolina does not offer a transfer-on-death deed for real estate, so inherited real property here usually passes through probate, a trust, or survivorship title rather than a beneficiary deed.

How Step-Up Works for South Carolina Inherited Property

What Qualifies for Step-Up

Nearly all capital assets inherited from a decedent receive a step-up:

• Real estate (homes, land, commercial property)
• Stocks and bonds
• Mutual funds and ETFs
• Business interests
• Collectibles and artwork
• Personal property that carries real worth

What Does Not Qualify

Some assets do not receive a step-up:

• Income in respect of a decedent (IRD): Traditional IRAs, 401(k)s, and other tax-deferred retirement accounts. Distributions are taxed as ordinary income to the beneficiary.
• Property gifted before death: If the decedent gave you the property as a gift during their lifetime, you generally take their original basis (carryover basis) under IRC Section 1015.
• Assets transferred within one year of death: If you gave appreciated property to the decedent and it returned to you within one year of their death, no step-up applies (IRC Section 1014(e)).

Separate Property, Not Community Property

South Carolina is a common-law, separate-property state, not a community property state. This shapes how much of a jointly owned asset steps up:

• Only the decedent's share of jointly owned property receives a step-up.
• If spouses own a home as joint tenants with survivorship, only half the property steps up when one spouse dies.
• The surviving spouse's half keeps its original basis.

This differs from community property states, where the entire asset can step up when the first spouse dies. South Carolina heirs get a single step-up on the decedent's share only, not a double step-up.

Calculating Your New Tax Basis

Step 1: Determine Fair Market Value at Death

The date-of-death value becomes your new basis. For different asset types:

Real Estate:

• Get a professional appraisal as of the date of death
• The estate may already hold an appraisal from probate
• Keep this documentation permanently

Stocks and Publicly Traded Securities:

• Use the average of the high and low trading prices on the date of death
• If the date of death falls on a weekend or holiday, average the trading prices from the business days before and after

Closely Held Business Interests:

• Require a professional business valuation
• The estate may have obtained one for probate or federal estate tax purposes

Personal Property:

• Appraisals for high-value items
• Fair market value based on comparable sales

Step 2: Consider the Alternate Valuation Date

If the estate files a federal estate tax return (Form 706), the executor may elect the alternate valuation date, which is six months after death. The election is available only if it lowers both the gross estate and the estate tax owed. When it applies, your basis is the value on that alternate date, or the value on the date of disposition if the asset was sold within the six months.

Most South Carolina estates never file a Form 706 because the federal exclusion is high, so this election is uncommon.

Step 3: Add Post-Death Improvements

After you inherit, any capital improvements you make raise your basis:

• Renovations and additions
• Major upgrades that add value, such as a new roof or new HVAC system
• Land improvements

Keep receipts and records for every improvement.

Example Calculation

Step-Up for Different Asset Types

Real Estate

Real estate is the most common asset where the step-up matters. In South Carolina, inherited real estate can reach you through several paths:

• Probate: The personal representative distributes the property, often by a deed of distribution, and the heir takes the stepped-up basis. See our South Carolina probate guide for the court process.
• Trust: Property held in a revocable living trust receives the same step-up as probate property.
• Survivorship deed: The decedent's share steps up; the surviving owner's share does not.

For deed, title, and county recording questions after a death, use our South Carolina real estate after death guide.

Stocks and Securities

Each security held at death steps up to its date-of-death value. This helps most for stocks held for decades with large unrealized gains.

Mutual funds: The basis steps up to the net asset value on the date of death, clearing the previously unrealized gains inside the fund.

Brokerage accounts: Contact the broker for date-of-death values. Most brokers provide a date-of-death statement on request.

Family Businesses

Business interests (partnerships, LLCs, S corporations, sole proprietorships) receive a step-up. The mechanics depend on the entity type:

• Sole proprietorship: Each business asset receives an individual step-up.
• Partnership or LLC: The inherited interest steps up, and a Section 754 election can adjust the inside basis of the entity's assets.
• S corporation: The stock basis steps up, but the inside basis of corporate assets does not change.

Collectibles and Personal Property

Art, antiques, jewelry, vehicles, and other high-value personal property all receive a step-up. Document the numbers with professional appraisals at the time of death.

South Carolina Capital Gains Tax

South Carolina does not levy a separate capital gains tax. Instead, it taxes capital gains as part of your personal income under its graduated income tax system.

South Carolina law may allow a deduction on net long-term capital gains, but this guide does not confirm the current amount or terms. Confirm any long-term deduction with the South Carolina Department of Revenue before you rely on it. Rates and any deduction change from year to year, so check the current figures at the Department of Revenue for the year you sell.

Several costs can still reduce your taxable gain, because they either raise your basis or lower your net proceeds:

• Selling expenses (real estate commissions, closing costs)
• Deed recording charges
• Legal and accounting fees tied to the sale
• Capital improvements, which are added to your basis

When trust income, estate income, or nonresident beneficiary withholding enters the picture, review it separately with our South Carolina fiduciary income tax guide.

Federal Capital Gains Tax

At the federal level, long-term capital gains (assets held more than one year) receive lower rates:

These are 2025 tax-year thresholds. The IRS adjusts the brackets each year, so check the current-year figures.

Net Investment Income Tax

An extra 3.8% tax applies to net investment income, including capital gains, for individuals with modified adjusted gross income above $200,000 (single) or $250,000 (married filing jointly).

Holding Period for Inherited Property

Inherited property is automatically treated as long-term under IRC Section 1223(9), regardless of how long the decedent or the heir actually held it. You qualify for the lower long-term rates even if you sell the day after you inherit.

No South Carolina Estate or Inheritance Tax

There is no South Carolina estate or inheritance tax. The South Carolina Department of Revenue states the state has no estate tax for deaths on or after January 1, 2005. That means:

• No state estate tax on any South Carolina estate, whatever its size
• No state inheritance tax on beneficiaries
• Only the federal estate tax applies, and only to estates above the federal exclusion

The absence of a state death tax makes the step-up even more useful for South Carolina heirs. You take the stepped-up basis without paying any state transfer tax on the inheritance. For how the federal estate tax can reach very large estates, see our South Carolina estate tax guide.

Planning Strategies to Maximize Step-Up

Hold Appreciated Assets Until Death

The most direct strategy: if you own highly appreciated assets, holding them until death lets your heirs take a full step-up. Selling before death triggers capital gains tax that the step-up could have erased.

Gift Low-Basis Assets to the Right Person

If you want to give assets away during your lifetime, give the ones with little unrealized gain. Keep highly appreciated assets in your estate so the step-up applies at death.

Avoid Gifting Highly Appreciated Property

When you gift property during your lifetime, the recipient takes your original basis (carryover basis), which erases the step-up benefit. For highly appreciated assets, transferring them at death almost always beats gifting them.

Use a Revocable Living Trust

Property in a revocable living trust receives the same step-up as property passing through probate, so you get probate avoidance without losing the tax benefit. For the full asset-record map, read our guide on how to avoid probate in South Carolina, and use the South Carolina probate fee calculator to see what avoiding court administration could save.

Weigh the Surviving Spouse's Basis

Because South Carolina uses separate property, only the decedent's half of jointly owned property steps up. Married couples should think about:

• How each asset is titled
• Whether one spouse holds far more appreciated property
• Whether a trust can better position each spouse's share

Document Everything

The IRS can challenge your claimed basis. Protect yourself by getting appraisals at the time of death, keeping the estate's inventory and valuation papers, saving records of every post-inheritance improvement, and keeping sale-related expense receipts.

Record-Keeping

Good records support the stepped-up basis you claim.

At Time of Inheritance

• Date-of-death appraisals for real estate
• Brokerage statements showing date-of-death values
• The estate inventory filed with the Probate Court
• Business valuations
• Appraisals of high-value personal property

During Ownership

• Records of capital improvements
• Property tax records
• Insurance records
• Maintenance and repair records, so you can separate improvements from repairs

At Time of Sale

• Settlement statements (Closing Disclosure)
• Real estate commission receipts
• Legal and accounting fees
• Deed recording charges
• Any other selling expenses

Keep these papers for at least three years after you file the tax return that reports the sale. Holding them longer is wise.

Frequently Asked Questions

Does South Carolina have a double step-up in basis?

No. South Carolina is a common-law, separate-property state, so only the decedent's share of jointly owned property steps up under IRC Section 1014. The surviving co-owner keeps their original basis. The double step-up applies only in community property states.

Does South Carolina tax the gain when I sell inherited property?

South Carolina taxes capital gains as part of your personal income under its graduated income tax. A step-up lowers the taxable gain, so selling at the stepped-up value often produces little or no South Carolina taxable gain. Confirm current rates and any long-term capital gains deduction with the South Carolina Department of Revenue.

Does South Carolina have an estate or inheritance tax?

No. There is no South Carolina estate or inheritance tax. The South Carolina Department of Revenue states the state has no estate tax for deaths on or after January 1, 2005. Only the federal estate tax can apply, and only to estates above the federal exclusion.

Do retirement accounts get a step-up in South Carolina?

No. Traditional IRAs and 401(k)s are income in respect of a decedent, so they do not receive a basis step-up. Beneficiaries owe ordinary income tax on withdrawals.

What if I received the property as a gift before death?

Lifetime gifts take a carryover basis under IRC Section 1015, not a stepped-up basis. Only property transferred at death receives the step-up under IRC Section 1014.

Can I use the home sale exclusion on an inherited house?

Only if you live in the inherited home as your main residence for at least two of the five years before selling. You cannot claim the Section 121 exclusion just because the decedent lived there.

Related South Carolina Guides

• Selling Inherited Property in South Carolina
• South Carolina and the Federal Estate Tax
• South Carolina Estate Tax
• South Carolina Probate Fee Calculator
• South Carolina Revocable Living Trust
• South Carolina Real Estate After Death

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Last Updated: July 2026. This guide provides general information about the step-up in basis for South Carolina inherited property. Tax situations vary by individual. Consult a tax professional or CPA about your situation. It is not legal advice.