South Carolina Cost Segregation and 2026 Tax Planning
By AE Tax Advisors · Published 2026-01-06 · Updated November 8, 2026.
South Carolina's 2026 individual tax calculation changed substantially. A projection based on older brackets and federal taxable income can be misleading even before considering a cost segregation study or business election.
Apply the 2026 calculation
Act 110 replaces the prior rate structure with 1.99% on the lower bracket and a 5.21% upper rate, with the applicable bracket adjustment. The state now starts from federal adjusted gross income rather than federal taxable income.
The law decouples from federal standard and itemized deductions and introduces a South Carolina Income Adjusted Deduction. Its amount depends on filing status and income. Do not simply multiply federal taxable income by the top state rate.
Model depreciation separately
South Carolina does not adopt Section 168(k) bonus depreciation. Reconcile the federal deduction to the state schedule and preserve the resulting basis difference for future depreciation and sale reporting.
A study can identify assets with different recovery periods, but the federal first-year deduction is not automatically the state first-year amount. Review the specific tax year, taxpayer and applicable state adjustments.
Test the active-business election
Qualifying active trade or business income can receive 3% treatment under the applicable state rules, including an entity-level election for eligible pass-through entities. That is not an automatic rate for every rental, capital gain or personal-service payment.
The reduced-rate definition excludes specified categories and requires an analysis of the actual income. An owner may already have an individual-level choice for qualifying income; the PTE election is not simply a universal reduction from the top personal rate.
Compare the complete owner result
Include the state tax base, election mechanics, federal deduction, owner reporting and any income outside the election. Review capital-gain deductions and other state provisions separately rather than promising one effective rate for every sale.
Keep the supporting schedules
Maintain federal and state depreciation, election records, income classifications, owner details and any sale allocation. Book a Cost Seg Discovery Call with the current returns and proposed property or business transaction.
Frequently Asked Questions
Can I use the old 6.2% rate for a 2026 projection?
No. Apply the 2026 rates and revised state tax-base rules.
Does every rental qualify for the 3% active-business rate?
No. The eligible-income definition and election requirements must be checked.
Does South Carolina allow federal bonus depreciation unchanged?
No. Section 168(k) is not adopted; maintain the state adjustment and basis schedules.
Sources and review notes
Reviewed November 8, 2026 by AE Tax Advisors. Examples are illustrative; apply the rules to the relevant tax year and records. See our editorial policy.