The Augusta rule gets its name from homeowners near the Masters golf tournament in Augusta, Georgia, who rent out their homes for one week a year. The tax code lets anyone exclude rental income if they rent their home for 14 days or fewer in a year. Business owners can use the same rule when their business rents their home for real business use.
How it works
Under Section 280A(g), if you rent your home for fewer than 15 days in a year:
- The rent you receive is not taxable income, and
- you do not deduct any rental expenses for those days.
When your business pays that rent for a legitimate business purpose, such as a board meeting, a strategy session or a client event, the business may be able to deduct the rent as an ordinary business expense.
An example
Your S corp holds 10 quarterly and planning meetings a year at your home. Comparable local meeting space rents for $750 a day. The business pays you $7,500, deducts it, and you report none of it as income.
Who it works for
It generally needs a business that is a separate taxpayer from you, such as an S corp, C corp or partnership. A sole proprietor cannot meaningfully pay rent to themselves.
Documentation is everything
The IRS and the Tax Court have denied this deduction when it was not supported. To use it properly:
- Charge fair market rent, backed by quotes or listings for comparable meeting or event space nearby.
- Hold real business meetings, with an agenda, attendees and notes for each date.
- Issue an invoice and pay the rent from the business account to your personal account.
- Keep it to 14 days or fewer in the calendar year, counting all rentals of the home.
Set up carefully, it is one of the simplest planning moves available to owners. We review it with every business client as part of year-round tax planning.