South Carolina does not conform to federal §168(k) bonus depreciation. The state has never adopted §168(k) — it's on the list of federal provisions South Carolina explicitly excludes under S.C. Code Ann. §12-6-50. STR investors get the full federal deduction but must add back 100% on the South Carolina return. On a $150,000 federal deduction, that costs about $9,000 in Year-1 state tax timing. For side-by-side context, the 50-state §168(k) conformity overview shows how South Carolina stacks up against every other US jurisdiction.
Modeled on a $150,000 federal §168(k) deduction. Open the state conformity tool →
How South Carolina Treats §168(k) — The Add-Back Mechanic
South Carolina generally follows federal AGI closely — but §168(k) is one of a handful of IRC sections the state has statutorily rejected. This is a common surprise for out-of-state investors buying into Charleston, Hilton Head, Myrtle Beach, or Greenville. The federal deduction works exactly as expected; the South Carolina return doesn't get any of it up front.
The mechanic: compute federal taxable income with the full §168(k) deduction. On the South Carolina return, add back the entire federal bonus amount. Then recompute South Carolina depreciation using the standard MACRS schedule — same recovery lives as federal (5-year for personal property, 15-year for land improvements, 39-year for the building shell), just without the bonus acceleration. The difference between federal and SC depreciation is recovered as a subtraction modification over the property's normal life.
Basis also diverges. Federal basis and South Carolina basis are tracked separately for the life of the asset. On disposition, gain or loss is recalculated on the South Carolina return using the higher state basis — a mechanism that eventually offsets the earlier add-back.
Worked Example — $150,000 Federal Deduction on a South Carolina STR
Consider an investor buying a $950,000 STR beach house on Isle of Palms, running a cost seg-style analysis, and identifying $150,000 in 5-year and 15-year bonus-eligible property (kitchen finishes, appliances, FF&E, pool/deck, landscaping). The federal §168(k) deduction is $150,000 in Year 1.
Assumptions: Federal marginal rate 37% · South Carolina top marginal rate 6.0% · Bonus depreciation acquired and placed in service after January 19, 2025 · STR loophole (§469) qualification confirmed for federal purposes.
| Line | Federal return | South Carolina return |
|---|---|---|
| §168(k) Year-1 deduction | $150,000 | $0 (100% add-back) |
| Year-1 tax rate | 37% | 6.0% |
| Year-1 tax savings | $55,500 | $0 |
| Year-1 state savings missed | — | ~$9,000 |
| Recovery | N/A (fully deducted) | MACRS over 5/15/39 years |
The $9,000 South Carolina miss is a timing shift, not a permanent loss. The federal $55,500 Year-1 savings is unaffected by South Carolina's decoupling. On eventual sale, the higher SC basis reduces state-level gain and closes the loop.
The Statute Explained
South Carolina's approach is unusually clean from a compliance standpoint: the state maintains an enumerated list of IRC provisions it does not adopt, and §168(k) has been on that list since 2002. There is no conformity date to track, no automatic pass-through to worry about — the disallowance is written directly into statute. When OBBBA restored 100% federal bonus depreciation for property acquired and placed in service after January 19, 2025, South Carolina's treatment did not change.
How South Carolina Compares to Federal-Conforming States
Of the 50 US states plus DC, roughly half conform fully to federal §168(k) — including neighbors like Alabama, which flows the entire federal bonus through to the state return with no add-back. South Carolina sits in the decoupled camp with Georgia, North Carolina (partial), and Virginia. At a 6.0% top marginal rate, South Carolina's dollar impact is in the middle of the decoupled pack — lower than Massachusetts, New York, or California, but meaningful on any six-figure deduction.
Use the state conformity tool to compare South Carolina against any other state at any federal deduction amount, or browse the full 50-state hub for a side-by-side view.
What This Means for Your STR Purchase Decision
South Carolina is a top-10 STR market by search volume — Charleston, Hilton Head, Myrtle Beach, and the Grand Strand all drive substantial buyer traffic. The state's non-conformity to §168(k) is real, but it doesn't change whether an STR is a good deal. Three practical implications:
- Federal Year-1 savings are your primary tax lever. On a Charleston STR with $150,000 in bonus-eligible property, the $55,500 federal Year-1 savings is where the STR loophole delivers.
- Track basis on two ledgers. SC basis will exceed federal basis for the life of the property. On disposition, expect a Schedule D reconciliation on the SC return.
- The $9,000 SC timing hit is real but not deal-killing. Compared to the $55,500 federal upside, the state timing shift is a manageable cost — model it in but don't let it deter you.
Before you write an offer on a Charleston, Hilton Head, or Myrtle Beach STR, run the address on your property — the report models the full federal Year-1 deduction and lets you factor South Carolina's timing shift into your underwriting.
Analyze a specific South Carolina property
Run any South Carolina STR listing through DepreciMax's $99 property report — line-item finish classification, federal §168(k) modeling, and South Carolina timing math included.
Frequently asked questions
Does South Carolina conform to federal §168(k) bonus depreciation in 2026?
No. South Carolina has never adopted §168(k). STR investors receive the full federal deduction but must add back 100% on the SC return under S.C. Code Ann. §12-6-50.
How much does South Carolina non-conformity cost a short-term rental investor?
On a $150,000 federal §168(k) deduction with South Carolina's 6.0% top marginal rate and 100% add-back, the Year-1 state miss is approximately $9,000. The federal $55,500 Year-1 savings is unaffected.
What is the South Carolina statute for §168(k) non-conformity?
S.C. Code Ann. §12-6-50, which enumerates the IRC sections South Carolina does not adopt. §168(k) has been on that list since 2002.
Does South Carolina non-conformity kill the short-term rental loophole?
No. The STR loophole is a federal §469 mechanism. South Carolina's add-back only changes state-level Year-1 timing. The federal deduction and the federal STR loophole benefit are unaffected.
Does South Carolina adjust basis for disposition?
Yes. State basis differs from federal basis for the life of the property. On sale, gain or loss is recalculated on the SC return using the higher state basis — offsetting the earlier add-back.
Did OBBBA change South Carolina's treatment of bonus depreciation?
No. OBBBA (P.L. 119-21) restored 100% federal bonus depreciation for property acquired and placed in service after January 19, 2025 at the federal level. South Carolina's disallowance is written directly into statute and isn't tied to a conformity date, so OBBBA doesn't change the SC treatment.
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