South Carolina is vulnerable to a long list of potentially catastrophic weather-related events throughout the year, meaning unexpected disasters can hit anytime and anywhere in our state. You can’t control if or when disaster strikes, but you can take steps to better protect your home and guard against financial loss. South Carolina offers several tax breaks to encourage homeowners to fortify their home and to help manage out-of-pocket insurance costs. Before tax season, review the tax incentives that are available to all South Carolina residents.
Residential Retrofit Income Tax Credits
The South Carolina Department of Revenue offers two tax credits that may be claimed by homeowners who make their home more disaster resistant to hurricanes, rising floodwaters, or other catastrophic windstorm events. The “Residential Retrofit Credit” offsets costs for qualified fortification projects which focus on making a home’s roof and openings, like the windows and doors, more disaster resistant. Most homeowners will pay to replace a roof during the course of ownership, and the retrofit tax credit can be used to offset that expense while making the roof as strong as possible.
The maximum credit in any taxable year is 25 percent of the total costs or $1,000, whichever is less. An additional “Tax Credit for Retrofit Supplies” allows for another credit of up to $1,500 against the state sales tax or use taxes paid on materials used as part of an eligible fortification project. Both credits can be claimed on the homeowner’s individual income tax return using the South Carolina Schedule TC43 form. For a copy of the form, go to www.dor.sc.gov and type in “TC43” in the search bar.
For more details on specific fortification requirements, visit the South Carolina Department of Insurance website, www.doi.sc.gov and search for “Tax Credits for Fortification Measures.”
Catastrophe Savings Account (CSA)
With a CSA, you can put aside money that is state income tax-free and use it in the future after a catastrophic event for qualified expenses, including paying your insurance policy deductible. Qualified catastrophic costs can result from a hurricane, flood or windstorm that has been declared by the governor as an emergency. Contribution limits depend on your insurance deductible:
- If your policy's deductible is less than or equal to $1,000, you can contribute up to $2,000;
- If your deductible is more than $1,000, you can contribute the lesser of $15,000 or twice the deductible amount; and
- If you self-insure, you can contribute up to a maximum of $250,000, but the amount may not exceed the value of your home.
All state or federally chartered banks can establish a CSA. The account must be separate from all other accounts; it must be held in an interest-bearing account and must be labeled a CSA. The money that is deposited and the interest earned is not subject to state income tax as long as it is left untouched, or as long as it is only used for qualified catastrophe expenses. If money is withdrawn for an unqualified reason, state income taxes must be paid as well as a 2.5 percent penalty. There are some exemptions that allow withdrawals without paying any state income taxes and certain exemptions that allow withdrawals where the taxpayer is taxed at the regular state income tax rate, but not the 2.5 percent penalty.
Excess Insurance Premium Tax Credit
The “Excess Insurance Premium Tax Credit” is available for homeowners who pay more than 5% of their adjusted gross income for insuring their private residence. For those who qualify, the state will allow for a credit up to the $1,250 maximum. An example – if your adjusted gross income is $50,000, 5% of the AGI would be $2,500. If you are paying $3,000 in homeowner’s insurance premiums (which is $500 higher than 5% of the $50,000 AGI), you could receive $500 as a tax credit. This tax credit is non-refundable and is a dollar-for-dollar reduction in your tax bill. Homeowner’s insurance premiums, wind and hail insurance premiums, and flood insurance premiums all count toward the credit.
The excess premium tax credit can be claimed on South Carolina returns using the TC44 form. If you were unaware of the tax credit and would have qualified in the past for the credit, you can file amended returns to claim past tax credits for up to three years. For a copy of the form, go to www.dor.sc.gov and type in “TC44” in the search bar.
Here to Help
Farm Bureau Insurance® has been in the business of protecting South Carolina homes since 1955. Your Farm Bureau Insurance agent can help you understand available coverage options. Find a local agent near you, request a quote online or reach a customer service representative at 1-800-799-7500.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax or accounting or accounting advice. Readers are encouraged to consult their own professional tax and accounting advisors on individual tax matters.