1. What a cost segregation study does
A building normally depreciates over 27.5 years (residential) or 39 years (commercial). A cost segregation study breaks the purchase price apart and reclassifies components like flooring, cabinetry, dedicated electrical, and land improvements into 5, 7, and 15-year property, so a large slice of the basis depreciates on much shorter schedules.
On the federal return, that reclassified property also qualifies for bonus depreciation, which restores a 100% first-year write-off for qualifying property acquired and placed in service after January 19, 2025. States set their own rules, which is where South Carolina comes in.
2. South Carolina and federal bonus depreciation
South Carolina has never allowed federal bonus depreciation: S.C. Code Section 12-6-50 specifically lists IRC Section 168(k) among the Code sections not adopted, for both individual and corporate income tax, and that exclusion has applied continuously since bonus first appeared in 2002 (SC Information Letter #03-17). OBBBA's permanent 100% bonus does not flow through: SC Information Letter #26-4 (Revised, Jan. 30, 2026) confirms SC conforms only to the IRC through Dec. 31, 2024 and that OBBBA's 168(k) modifications are specifically not adopted, so taxpayers must continue adjusting their SC returns. The 2026-session bills to update conformity to Dec. 31, 2025 (H.5167/H.5178) died in committee and the temporary-reconformity vehicle (H.3368 as Senate-amended) failed on the Senate floor 3/31/2026, leaving bonus fully disallowed for 2025 and 2026 SC returns as of October 2026; even a future conformity update would not adopt bonus because 168(k) sits on the permanent 12-6-50 exclusion list.
In the placed-in-service year, add back the difference between federal depreciation (with bonus) and the depreciation that would have been allowed without bonus, via the SC1040 'other additions' line (corporations on SC1120). Because SC uses the same MACRS lives as federal, SC depreciation is simply recomputed without bonus, producing larger SC depreciation deductions ('other subtractions') in each remaining year of the recovery period; any unrecovered SC/federal basis difference reverses on sale.
Worked example
A $1,000,000 building, with and without a study
Illustrative only. A residential rental purchased for $1,000,000 of building basis (land excluded), acquired and placed in service after January 19, 2025.
Building basis
$1,000,000
Reclassified to 5, 7, and 15-year property (25%)
$250,000
Federal first-year deduction at 100% bonus
$250,000
Year 1 on that $250,000 without a study (27.5-year straight line)
about $9,100
On the South Carolina return, the $250,000 federal bonus deduction is not allowed. In the placed-in-service year, add back the difference between federal depreciation (with bonus) and the depreciation that would have been allowed without bonus, via the SC1040 'other additions' line (corporations on SC1120). Because SC uses the same MACRS lives as federal, SC depreciation is simply recomputed without bonus, producing larger SC depreciation deductions ('other subtractions') in each remaining year of the recovery period; any unrecovered SC/federal basis difference reverses on sale.
Model your own numbers with the tax strategy projector.
3. Section 179 in South Carolina
South Carolina Section 179 cap: $1,250,000 expensing limit / $3,130,000 phase-out for 2025 (pre-OBBBA IRC as of Dec. 31, 2024, as inflation-indexed), versus the federal $2.5M/$4M under OBBBA.
Section 179 is NOT on the S.C. Code 12-6-50 exclusion list, so SC fully adopts 179 as it existed in the IRC on SC's conformity date. Historically SC picked up every federal 179 increase through its annual conformity act, but because the legislature has not conformed past Dec. 31, 2024, SC Information Letter #26-4 says the OBBBA increase to $2.5 million is not adopted for 2025; taxpayers who expense above the pre-OBBBA limit federally must add back the excess on the SC return until a future conformity act (expected to be taken up again in the next session) catches the state up.
4. Does it still help in South Carolina?
Yes. South Carolina adopts regular MACRS (IRC 168(a)) with identical recovery periods and lives to federal, so reclassifying components into 5-, 7-, and 15-year property still front-loads SC depreciation materially versus straight 27.5/39-year; only the bonus layer gets added back, and up to $1.25M (2025) of eligible 5/7/15-year property can still be expensed under SC's Section 179.
- •South Carolina is one of the longest-standing bonus decouplers in the country: 168(k) has been on the S.C. Code 12-6-50 'not adopted' list since the original 30% bonus in 2002, so no annual conformity update ever picks it up (SC Information Letter #03-17).
- •SC missed the OBBBA window: the legislature adjourned in May 2025 before OBBBA passed (Act 63 of 2025 conformed only through Dec. 31, 2024), and every 2026 attempt to conform through Dec. 31, 2025 failed (H.5167 and H.5178 died in House Ways and Means; H.3368, amended in the Senate into a temporary reconformity vehicle, failed Senate second reading 16-27 on March 31, 2026). As of October 2026 no OBBBA provision is adopted.
- •Because SC keeps federal MACRS lives, the bonus addback is fully recovered as extra SC depreciation spread over the same recovery period; there is no permanent disallowance, only timing.
- •SC Information Letter #26-4 lists 8 OBBBA items requiring 2025 SC addbacks, including the Section 179 increase to $2.5M, the bigger standard deduction, tips/overtime/car-loan-interest deductions, the $40k SALT cap, and immediate domestic R&E expensing.
- •Act 63 of 2025 contains an auto-extension clause (IRC sections SC has adopted that are merely extended by Congress are automatically extended for SC), but OBBBA's 100% bonus and 179 increase are amendments, not extensions, so they do not auto-flow.
- •Bonus depreciation is also disallowed on South Carolina's business personal property tax return (Form PT-100), a trap for short-term-rental and furnished-rental investors reporting furnishings (SC Information Letter #03-17).
- •The addback mechanics run through the SC1040 'other additions' line in year 1 and 'other subtractions' in later years; there is no separate SC depreciation form.
5. The exit: recapture and timing
The accelerated deductions come back into view when you sell. Gain attributable to the 5, 7, and 15-year property is Section 1245 recapture, taxed at ordinary rates, and the straight-line depreciation on the building itself is unrecaptured Section 1250 gain, taxed at up to 25%. A study does not create that bill, it moves deductions forward, but the timing of the sale decides how much of the benefit you keep.
Two levers manage the exit. A 1031 exchange defers both flavors of recapture along with the rest of the gain, and simply holding the property lets the time value of the early deductions do its work; most owners want a 3 to 5 year horizon before a taxable sale for the math to stay comfortably positive. Model the exit before you commission the study, not after.