Capital Gains Tax on Selling a Lake Murray Home: What SC Waterfront Sellers Need to Know

Disclaimer: I’m a real estate agent, not a CPA or tax attorney. This article is for informational purposes only and should not be considered tax advice. Always consult a qualified tax professional before making financial decisions about selling your home.

One of the first things Lake Murray homeowners ask when they start thinking about selling isn’t about staging or photography or even pricing. It’s this: “How much am I going to owe in taxes?”

It’s a smart question, and it’s especially relevant on Lake Murray. Many homeowners here have held their waterfront property for 10, 15, or 20+ years. The home they bought for $350,000 in 2005 may now be worth $800,000 or more. That’s a significant gain, and understanding the tax implications before you list can change how you approach the entire sale.

Here’s a plain-language overview of what Lake Murray sellers should know about capital gains tax, the South Carolina tax landscape, and the questions to bring to your CPA before you put that sign in the yard.

Lake Murray, SC - The Patrick O’Connor Team

What Is Capital Gains Tax on a Home Sale?

Capital gains tax is a tax on the profit you make when you sell an asset — in this case, your home. The “gain” is the difference between what you paid for the property (your cost basis) and what you sell it for, minus certain allowable deductions like closing costs and qualifying home improvements.

For example, if you purchased your Lake Murray home for $400,000, put $80,000 into documented improvements over the years (a new dock, a kitchen renovation, a seawall), and sell it for $900,000, your gain is approximately $420,000. Whether you owe tax on all of that, part of it, or none of it depends on several factors.

Lake Murray, SC - The Patrick O’Connor Team

The Primary Residence Exclusion: The Biggest Shield for Most Sellers

The IRS allows individual homeowners to exclude up to $250,000 in capital gains from the sale of a primary residence ($500,000 for married couples filing jointly). To qualify, you generally need to have owned the home and used it as your primary residence for at least two of the five years before the sale.

For many Lake Murray homeowners who have lived in their waterfront home as their primary residence, this exclusion covers their entire gain. If you and your spouse bought your Chapin waterfront home for $500,000 and sell it for $950,000, your $450,000 gain falls within the $500,000 married-couple exclusion. In that scenario, you may owe zero federal capital gains tax on the sale.

But here’s where it gets more nuanced for Lake Murray specifically.

Work With Us

Where Lake Murray Sellers Get Tripped Up

Second homes and vacation properties. A meaningful number of Lake Murray homeowners use their waterfront property as a second home or weekend retreat, with a primary residence elsewhere. If the property isn’t your primary residence, the $250,000/$500,000 exclusion does not apply. You’d owe capital gains tax on the full profit. At current long-term capital gains rates (0%, 15%, or 20% depending on your income level), that can be a substantial amount on a property that’s appreciated significantly.

Rental history complicates things. Some Lake Murray owners have rented their home — either full-time or as a short-term rental on platforms like Airbnb or VRBO — at some point during ownership. If you claimed depreciation on the property while it was a rental, that depreciation may need to be “recaptured” at a 25% rate when you sell, regardless of whether the primary residence exclusion applies to the rest of the gain. This catches a lot of sellers off guard.

Long-term owners with massive gains. If you bought lakefront property in the early 2000s or before, your gain could exceed the exclusion. A couple who bought a waterfront home for $250,000 in 2001 and sells for $1.1 million has an $850,000 gain. Even with the $500,000 exclusion, $350,000 is potentially taxable. At a 15% long-term capital gains rate, that’s roughly $52,500 in federal tax alone, plus South Carolina state tax.

South Carolina’s Tax Angle

South Carolina does tax capital gains, but there’s a significant benefit for long-time residents. SC allows a deduction of up to 44% of net capital gains, which effectively reduces the state tax burden on home sale profits. The state income tax rate tops out at 6.5% (as of this writing), but with the capital gains deduction, the effective rate on gains is lower.

Additionally, South Carolina follows the federal primary residence exclusion. If your gain is fully excluded at the federal level, it’s generally excluded at the state level too.

That said, the specifics of your situation — your total income, filing status, and other capital gains in the same year — all affect the math. This is why I always tell sellers to sit down with a CPA before listing, not after closing.

How to Reduce Your Taxable Gain (Legally)

There are several strategies that can reduce or defer the tax hit when selling a Lake Murray home. Again, these are topics to discuss with your tax professional, but you should be aware they exist:

Document every improvement. Your cost basis isn’t just what you paid for the home. It includes qualifying capital improvements: a new roof, dock construction or replacement, seawall installation, room additions, HVAC systems, kitchen and bath renovations, and more. Every dollar of documented improvement increases your basis and reduces your taxable gain. I’ve seen sellers leave tens of thousands of dollars on the table because they didn’t keep receipts. Start gathering those records now.

Selling costs reduce the gain. Your real estate commission, closing costs, title insurance, transfer taxes, and even staging expenses can typically be deducted from the sale price when calculating your gain. These add up.

1031 Exchange (for investment properties). If your Lake Murray home was an investment or rental property, you may be able to defer capital gains through a 1031 like-kind exchange by reinvesting the proceeds into another investment property within strict timelines. This doesn’t apply to primary residences, but it’s a powerful tool for lake property investors.

Timing the sale across tax years. Depending on your income situation, closing in January versus December could put your gain in a different tax year with a different effective rate. Your CPA can model this for you.

What to Do Before You List Your Lake Murray Home

My advice to every Lake Murray seller thinking about timing and taxes:

Step 1: Get a realistic market value. Before you can calculate potential gains, you need to know what your home is actually worth in today’s market. That’s where a detailed comparative market analysis from an agent who understands waterfront values comes in. I provide this at no cost.

Step 2: Gather your records. Pull your original purchase documents, closing statement, and every receipt or invoice for capital improvements. Dock permits, seawall contracts, renovation invoices — all of it.

Step 3: Meet with a CPA who understands real estate. Not all accountants regularly deal with waterfront property sales. Find one in the Columbia or Lexington area who does. I’m happy to connect you with professionals my clients have worked with.

Step 4: Build a plan, then list. Once you understand the tax picture, you can make informed decisions about timing, pricing, and even which improvements to make before listing. The goal is to walk away from closing with clarity, not surprises.

The Bottom Line

Capital gains tax doesn’t have to be a dealbreaker for Lake Murray sellers. Most primary residence owners will be covered by the federal exclusion. But for second-home owners, long-time holders with large gains, and anyone with rental history on the property, the tax conversation is essential — and it needs to happen before you list, not at the closing table.

This is one of many reasons why choosing the right listing agent matters. I don’t just help you price and market your home. I help you think through the full picture — including connecting you with the right professionals to make sure you keep as much of your equity as possible.

Work With Us

About Patrick O’Connor at Coldwell Banker Realty.

Patrick O'Connor is the founder and leader of The Patrick O'Connor Team at Coldwell Banker, specializing in real estate across the SC Midlands including Lake Murray real estate. As a top realtor, he has assisted over 1,600 families in buying and selling homes and is recognized as the #1 Coldwell Banker team in South Carolina, Patrick brings unparalleled expertise on Lake Murray and in the Midlands of South Carolina real estate market, earning accolades for his dedication and success in the industry.

Learn more about Patrick O’Connor ➜

Patrick O'ConnorMarch 22, 2026