South Carolina does not have an inheritance tax
South Carolina has no state-level inheritance tax. You will not owe the state money based on inheriting property, money, or other assets from a deceased person's estate. This is true whether you inherit from a relative, a spouse, or someone outside your family.
However, the absence of a state inheritance tax does not mean inheritance is completely tax-free. The federal government may impose an estate tax on very large estates, and you may owe income tax on certain inherited assets that generate income after you receive them. Understanding the difference between these taxes matters if you are managing an estate or expecting to inherit.
Key Takeaways
- South Carolina does not tax inheritances at the state level, so you owe nothing to the state when you receive inherited assets.
- The federal estate tax applies only to estates larger than $13.61 million (as of 2024), and that threshold changes yearly.
- Inherited income-producing assets—such as rental property or investment accounts—may trigger income tax when they generate earnings after you inherit them.
- South Carolina also has no state estate tax, which further simplifies inheritance for residents.
The difference between inheritance tax and estate tax
An inheritance tax is paid by the person who receives the assets. An estate tax is paid by the estate itself before assets are distributed. South Carolina has neither. Some states impose one, the other, or both—but South Carolina imposes neither at the state level.
The federal government does have an estate tax, but it affects only the largest estates. For 2024, the federal exemption is $13.61 million per person. Estates smaller than that owe no federal estate tax. The exemption amount changes each year and is scheduled to drop significantly after 2025, so if you are managing a large estate, the timing of death matters.
Because South Carolina has no state estate tax and no inheritance tax, residents face a simpler situation than those in states like Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania—all of which impose inheritance taxes on certain heirs.
What you may owe on inherited income-producing assets
Inheriting an asset itself is not a taxable event in South Carolina. But if that asset generates income after you inherit it, you may owe federal income tax on that income. The type of asset determines what you owe.
If you inherit a rental property, you will owe income tax on the rent you collect. If you inherit a savings account or money market fund, you will owe income tax on any interest it earns after the date of death. If you inherit stocks or mutual funds, you will owe capital gains tax if you sell them for more than their value on the date of death—a rule called stepped-up basis that often eliminates tax on appreciation that occurred before you inherited.
If you inherit a retirement account such as an IRA or 401(k), the rules are more complex. You may be required to withdraw funds within a set timeframe, and those withdrawals are taxed as income. The find Act of 2019 changed these rules significantly, so if you inherit a retirement account, you should review the current withdrawal requirements with a tax professional or the account custodian.
How stepped-up basis works in your favor
One major tax advantage of inheriting in South Carolina (and across the United States) is stepped-up basis. When you inherit an asset, its tax basis—the value used to calculate capital gains tax—resets to its fair market value on the date of death, not the price the deceased person paid.
For example, if someone bought stock for $10,000 and it was worth $50,000 when they died, you inherit it with a basis of $50,000. If you sell it when ready for $50,000, you owe no capital gains tax. The $40,000 gain that occurred during the deceased person's lifetime is never taxed. This rule applies to real estate, vehicles, investments, and most other property.
This benefit is scheduled to change after 2025 under current federal law, though Congress may alter that timeline. If you are inheriting significant assets, understanding stepped-up basis now can help you plan when and how to sell inherited property.
Federal estate tax thresholds and who it affects
The federal estate tax applies only to estates exceeding the annual exemption. For 2024, that exemption is $13.61 million per person and $27.22 million for a married couple filing jointly. These figures increase slightly each year to account for inflation.
If an estate is smaller than the exemption, no federal estate tax is owed and no federal estate tax return is required. If an estate exceeds the exemption, the executor must file a federal estate tax return (Form 706) and the excess is taxed at a rate of 40 percent.
The exemption is scheduled to drop to approximately $7 million per person (adjusted for inflation) on January 1, 2026, unless Congress extends the current law. This sunset provision means that estates that are safe from federal tax today could face tax liability if the owner dies after 2025. Families with substantial assets should review their situation with an estate planning attorney.
South Carolina probate and what it costs
While South Carolina has no inheritance or estate tax, the state does have a probate process that can involve court fees and attorney costs. Probate is the legal process of validating a will, inventorying assets, paying debts, and distributing what remains to heirs.
Probate costs vary based on the size of the estate and whether the process is contested. Court filing fees, executor compensation, and attorney fees are all possible expenses. These are not taxes—they are costs of administering the estate—but they do reduce the amount available to heirs.
Some assets avoid probate entirely. Assets held in a living trust, accounts with a named beneficiary (such as life insurance or retirement accounts), and property held as joint tenants with rights of survivorship pass directly to the designated recipient without going through probate. Planning your assets to minimize probate is a separate matter from inheritance tax, but it can significantly reduce costs.
Planning for inheritance in South Carolina
Because South Carolina has no inheritance or state estate tax, the main tax concerns are federal estate tax (for very large estates), income tax on inherited assets that generate earnings, and the cost of probate. A basic will or living trust can address probate costs and may support your wishes are carried out.
If your estate is likely to exceed the federal exemption, or if you own property in multiple states, working with an estate planning attorney is worthwhile. They can help you structure your assets to minimize federal tax, avoid probate, and may support a smooth transfer to your heirs.
For most South Carolina residents, the absence of state inheritance and estate tax means the focus can be on organizing assets, naming beneficiaries clearly, and choosing between a will and a trust based on your family situation and the size of your estate.
Frequently Asked Questions
Do I owe South Carolina tax if I inherit money from someone who lived out of state?
No. South Carolina has no inheritance tax regardless of where the deceased person lived or where the assets are located. However, if the deceased person lived in a state with an inheritance tax, that state may attempt to collect tax from the estate. The state where the person died, not where you live, determines whether inheritance tax is owed.
What if I inherit a house in South Carolina?
You will not owe South Carolina inheritance or estate tax on the house itself. If you rent it out, you will owe federal income tax on the rent. If you sell it, you will owe capital gains tax only on any increase in value after you inherited it, thanks to stepped-up basis. Property taxes and homeowners insurance are separate obligations unrelated to inheritance.
Is there a time limit to claim an inheritance in South Carolina?
South Carolina law does not impose a important date for claiming an inheritance, but the probate process itself has timelines. The executor must notify heirs within a set period and must complete the probate process within a reasonable time. If you believe you are may have access to to an inheritance and have not been contacted, you should speak with an estate attorney in South Carolina.
Do I have to report an inheritance to the IRS?
You do not report the inheritance itself on your federal income tax return. However, if the inherited asset generates income—such as interest, dividends, or rent—you must report that income. The executor of the estate files a final income tax return for the deceased person and may file a fiduciary income tax return for the estate if it earns income during administration.
What happens if the estate owes federal estate tax?
The executor is responsible for paying federal estate tax from the estate's assets before distributing the remainder to heirs. This reduces the amount each heir receives. The executor files Form 706 (the federal estate tax return) and pays the tax due. If the estate does not have enough liquid assets to pay the tax, the executor may need to sell assets or borrow money.