A Hidden Tax Provision You Need to Know About.

by | Aug 18, 2017 | Legal Tips

There is a little known tax provision in South Carolina Code §12-43-220 that pertains to the 4% owner occupant tax rate.  As you are aware an owner occupant pays a 4% tax rate whereas an investor or second home owner pays at a 6% property tax rate.  The difference can be two to three fold more in property taxes.

What you may not know is if the owner of the property rents the house for 72 days or more in the calendar year, they most likely will not qualify for the 4% tax rate even if they live in the house the remaining portion of the tax year. This provision is poorly drafted and is hidden in the statute section pertaining to the affidavit that the taxpayer must sign in order to qualify for the 4% tax rate. Therefore, if your buyer is purchasing a house and allowing the seller to rent the house back and the rental period is for 72 days or more your buyer may not qualify for the lower 4% tax rate even after they move in the house as their primary residence. The buyer would have to pay the higher 6% tax rate for that tax year and then apply for the 4% tax rate the following tax year.

We know that Lexington County is actively enforcing this tax provision. Be very careful when a seller wants to close and rent the house back from your buyer. If you do not explain to your client that a lengthy rent-back term could cost them two to three times more in property taxes for the first year you could find yourself in hot water with your client.

Photo by turkeychik


Photo by turkeychik

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