State tax addback
If you itemized your deductions on your federal Income Tax return and deducted state and local Income Tax or general Sales Tax, you may be required to add back all or part of this amount to your federal taxable income when computing your South Carolina taxable income.
Federal law limits your total deduction for state and local Income, Sales, and Property Taxes to a combined, total deduction of $10,000 ($5,000 if Married Filing Separate). Any state and local taxes paid above this amount cannot be deducted on your federal return.
In determining the state tax addback for a taxpayer whose tax deduction is limited to $10,000, you may first apply real or personal Property Taxes reported on federal Schedule A, lines 5b and 5c before applying state and local Income Taxes or general Sales Taxes reported on federal Schedule A, line 5a.
The state tax addback required for South Carolina is the lesser of your:
a. itemized deductions in excess of the standard deduction that would have been allowed if you had used the standard deduction for federal Income Tax purposes;
b. state and local Income Taxes or general Sales Taxes from your federal 1040, Schedule A, line 5a; or
c. the $10,000 federal tax deduction limit less deductible property taxes.
If you reported losses from out-of-state rental property, a business located outside South Carolina, or losses from real property located in another state, enter the amount from your federal return on line b. Include any related expenses, such as investment interest. Enter the total of these losses and related expenses on this line. Personal service income (W-2 or business wages) is taxable to South Carolina no matter where it is earned.
Expenses related to National Guard and Military Reserve income
Enter the expenses from your service in the National Guard or Reserves that you deducted on your federal return. You will deduct your income from the National Guard or Reserves on line n of the SC1040.
Enter the amount of interest income that was exempt on the federal return and comes from obligations of states and political subdivisions other than South Carolina. For a mutual fund, add back the percentage of exempt interest income attributable to out-ofstate non-federal obligations.
Other additions to income
Attach an explanation of your entry for this line. Some examples of items to enter on this line are:
• Taxpayers who claim bonus depreciation under federal law must add back the difference between the bonus depreciation taken and the depreciation which would have been allowed without bonus depreciation.
• Taxpayers who claim a nonrefundable credit for contributions to Exceptional SC (SCH. TC-57) are not allowed a deduction for these contributions. Add back the amount of the contribution deducted on the federal return.
• Taxpayers who claim a child care program credit for donations to a nonprofit corporation (SCH.TC-9) are not allowed a deduction for those donations. Add back the donation deducted on the federal return.
• Taxpayers who claim credits such as the Community Development Credit (SCH.TC-14), the Industry Partnership Fund Credit (SCH.TC-36), and the Credit for Child Care Program (SCH.TC-9), may not claim a deduction for the same qualified contribution which results in the credit. Add back the amount deducted on the federal return.
• Add back the federal net operating loss when it is larger than the South Carolina net operating loss being claimed.
• Add back any expenses deducted on the federal return related to any income not taxed by South Carolina. Some examples are investment interest to out-of-state partnerships and interest paid to purchase US obligations.
• Add back foreign area allowances, cost of living allowances, and income from US possessions.
• For qualifying investments made after June 30, 1998, taxpayers must reduce the basis of the qualifying property to the extent the Capital Investment Tax Credit is claimed. Add back any resulting reduction in depreciation.
• Add back the qualified business income deduction under IRC Section 199A.
• Add back any charitable contribution of land deducted under IRC Section 170 unless it meets the donative intent requirements of SC Code Section 12-6-5590.
• Include any withdrawals during the tax year from a Catastrophe Savings Account that were:
1. necessary because contributions were more than the allowable limits; or
2. more than the amount needed to cover qualified catastrophe expenses.
Do not include any withdrawals made by the surviving spouse of the account owner.
Qualified catastrophe expenses are expenses paid or incurred because of a major disaster as declared by the Governor.
• A business must add back any amount paid for services performed by an unauthorized alien if the amount is $600 or more a year.
Depending on how a particular item was reported or deducted, the following items may be an addition or a subtraction:
• A change in the accounting method to conform in the same manner and the same amount to the federal. At the end of the federal adjustment, any balance will continue until fully adjusted.
• Adjust the installment method of reporting if:
o the entire sale has been reported for state purposes, or
o the entire sale was reported for federal purposes and you wish to continue on an installment basis for state purposes
• Adjust the federal gain or loss to reflect any difference in the South Carolina basis and federal basis.