South Carolina has long attracted investors with its low property taxes and strong real estate appreciation. However, what many don’t see are the hidden taxes on investment homes quietly cutting into profits.
Across the state, property values have surged in recent years. Assessment ratios, capital gains exposure, and local millage rates add unexpected costs at closing.
This post uncovers how those hidden taxes work, why they matter, and what steps you can take to protect your investment.
South Carolina Real Estate Market Watch
As of September 2025, homes in Lexington County average 49 days on the market. However, real estate trends in South Carolina can change quickly. Contact the Southern Dreams Realty team for the most up-to-date information.
What You Need to Know About Hidden Taxes on Investment Homes in SC
Assessment Ratio: The 4 % vs 6 % Shift
South Carolina offers one of the lowest property tax rates in the nation. Still, there’s a major distinction investors must know. Assessments for primary residences are at 4 percent of the market value. Investment and rental properties have assessments at 6 percent of their value.
That 2 percent gap may sound small, but the difference compounds quickly. A $300,000 property assessed at 6 percent has a taxable base of $18,000, compared to $12,000 at 4 percent. Once local millage rates apply, the higher assessment can significantly increase annual tax bills.
Millage and Local Variation
Millage represents the tax rate applied per $1,000 of assessed value. Each county in South Carolina sets its own rate. That means two identical investment homes can face very different tax burdens depending on location.
For example, a 5-mill difference translates to $5 per $1,000 of assessed value. When paired with a 6 percent assessment ratio, even small millage changes can cost thousands of dollars annually.
Understanding your county’s current millage rate before purchasing is essential for accurate ROI forecasting.
Reassessment Caps and ATI Events
State law limits reassessment increases to 15 percent over five years, helping stabilize property taxes. However, an assessable transfer of interest (ATI) resets that cap. Events such as a sale, a trust transfer, or a change in ownership structure can trigger an ATI.
Investors often encounter unexpected spikes in tax bills after acquiring properties because they fail to anticipate this reassessment. Reviewing how counties interpret ATI rules ensures you avoid unpleasant surprises.
ATI Exemption: A Hidden Break
The ATI exemption is one of the few tax benefits available to investors in South Carolina. It allows for up to a 25 percent reduction in assessed value after an ATI, lowering your property tax obligation.
To qualify, you must apply by January 30 of the year following your property’s purchase. Missing the deadline can permanently forfeit the exemption. For a $400,000 investment property, this exemption could reduce the taxable base enough to save thousands per year.
Income Tax, Rental Income, and SC
South Carolina taxes net rental income as ordinary income. Investors can deduct operating expenses, such as repairs, depreciation, management fees, and insurance, before calculating taxable income.
For instance, if your property generates $20,000 in net rental profit, your state income tax could range from a few hundred to several thousand dollars, depending on your income bracket. Planning for these taxes ensures that your cash flow projections remain realistic.
Capital Gains on Sale
When you sell an investment property, South Carolina allows a 44 percent exclusion on long-term capital gains. That means only 56 percent of the gain is taxable at your ordinary income tax rate. With South Carolina’s top marginal income tax rate of 6.4 percent, this effectively reduces the maximum capital gains rate to approximately 3.58 percent.
Investors who use a 1031 exchange can defer these taxes by reinvesting the proceeds into another qualifying property. While the process has specific requirements, it remains a useful strategy for growing portfolios without immediate tax penalties.
The Overlooked “Home Equity Tax”
One of the most common hidden taxes catching South Carolina investors off guard comes from outdated federal capital gains limits. The IRS still exempts only $250,000 for single sellers and $500,000 for married couples. These figures have remained unchanged since 1997. In that time, home prices have risen more than 190 percent, pushing many ordinary sales beyond those limits.
If you own an investment property, you could face an unexpected tax bill when it’s time to sell. About 34 percent of homeowners now hold enough equity to surpass the $250,000 federal exemption. That means even normal appreciation can result in taxable gains.
Local Filings and Declarations
Many counties require investors to file a “Rental Residential Return” for properties taxed at the 6 percent rate. The form details the property’s use and lists furnishings or appliances.
Failing to file may result in the assessor assigning a higher taxable value or treating your property as fully furnished, increasing your bill. Always verify filing requirements with your county assessor’s office and keep documentation up to date.
County Differences You Must Watch
Each South Carolina county enforces property assessments differently. Charleston, Greenville, Lexington, and Richland counties all have unique millage rates, appeal procedures, and audit practices.
Some counties review investment properties aggressively to ensure proper classification. Others allow more leniency in appeals. Before closing on a purchase, investors should check how local tax assessors operate and confirm all deadlines.
Key Questions Investors Often Ask
What qualifies as an ATI in South Carolina?
A sale, transfer to a trust, or change in ownership structure usually triggers an assessable transfer of interest. That resets your taxable value.
Can I keep the 4 percent rate if I rent part of my home?
No. Once you begin renting or using the property for non-owner purposes, the assessment ratio automatically shifts to 6 percent.
What happens if I miss the ATI exemption deadline?
You lose eligibility for the exemption, and the county will assess the property at its full taxable value.
Do all counties enforce the 4 percent versus 6 percent rule?
Yes. State law mandates it, but audit strictness varies from one county to another.
Does the ATI exemption apply to multifamily or commercial properties?
Yes. The exemption can apply to any property taxed at the 6 percent assessment rate. That includes multifamily investments, provided they meet eligibility requirements.
Invest Smart with Local Insight
Understanding hidden taxes is essential to preserving your return. At Southern Dreams Realty, we help investors identify properties with strong long-term potential.
If you’re exploring investment homes in South Carolina, reach out to Southern Dreams Realty. We’ll help you make informed decisions and uncover opportunities others might miss.
