If you are selling a vacation/rental home, there is a chance you will need to obtain a Certificate of Tax Compliance from the South Carolina Department of Revenue prior to closing.
To begin, I am obligated to state I am not a tax attorney nor a CPA and nothing discussed here is intended as tax advice. Tax advice should come only from your tax professional.
A vacation home may, indeed, be a business asset even though it is individually owned (as opposed to being owned by an LLC or corporation). If it is considered a business asset and if that asset makes up a majority of the value of the assets of that business, a Certificate of Tax Compliance must be obtained from the South Carolina Department of Revenue before closing can proceed. A failure in this circumstance to procure a Certificate of Tax Compliance means a tax lien can be placed on the vacation home in the hands of the buyer. Now you see why this is important, let’s have a look at the rules.
When is a vacation home considered a “business asset?”
South Carolina Revenue Ruling #04-2 explains that, if the owner of the vacation home is limited in its deductions pursuant to Internal Revenue Code 280A, the vacation home is not deemed a “business asset” and the closing may proceed without a Certificate of Tax Compliance. If, on the other hand, deductions are not limited, the vacation home is deemed to be a business asset. In this situation, if the asset makes up a majority of the value of the business assets, the seller will need to procure a Certificate of Tax Compliance from the South Carolina Department of Revenue and present it at or before closing. If this is done, closing may proceed without risking a tax lien on the home in the hands of the buyer.
Stated in the converse, a Certificate of Tax Compliance is not needed where:
- the asset is not a business asset; or
- the asset does not comprise a majority of the seller’s business assets.
In the above situations, the seller merely needs to execute a Transferor Affidavit (we provide this) at or before closing and the closing can proceed.
Obviously, you should consult with your tax professional well prior to closing to determine if your vacation home is a business asset. Once that is known, we can help you navigate through the closing requirements.