The Augusta Rule: How to Rent Your Home Tax-Free for 14 Days a Year
Imagine earning thousands of dollars in rental income—completely tax-free. Thanks to a little-known provision in the Internal Revenue Code, that’s entirely possible under the Augusta Rule.
Named after Augusta, Georgia (home of the Masters golf tournament, where homeowners would rent their homes to visitors for short periods), this rule allows homeowners to rent out their personal residence for up to 14 days per year without reporting the income on their tax return.
Here’s how it works—and how business owners can legally use it to reduce taxable income.
What Is the Augusta Rule?
The Augusta Rule, found in IRC § 280A(g), allows homeowners to rent out their personal residence for up to 14 days per year without having to include that income on their tax return.
If you meet the requirements, this short-term rental income is completely tax-free, and you’re not required to report it on your return.
Legal Basis: Internal Revenue Code § 280A(g)
Section 280A(g) – Special Rule for Certain Rental Use:
If a dwelling unit is used by the taxpayer as a residence and rented for less than 15 days during the year:
- No deduction is allowed for expenses attributable to the rental use, and
- The income derived from that rental is excluded from gross income under section 61.
In short:
- Rent your home for 14 days or fewer,
- Exclude the rental income from your taxable income, and
- Do not deduct any rental-related expenses for those days.
How the Augusta Rule Works
To qualify, homeowners must meet three simple conditions:
- Use as a Residence
The property must be used as a personal residence by the taxpayer during the year.
Homes, condos, apartments, and vacation properties all qualify.
- Rental Duration
The home can be rented out for 14 days or fewer per year. Once you rent it for 15 days or more, the entire rental income becomes taxable, and different rental property rules apply.
- Tax Consequence
If you rent your home for 14 days or fewer, you:
- Do not report the income on your tax return, and
- Cannot deduct expenses related to those rental days (mortgage interest, property taxes, utilities, etc.).
👉 See IRS Publication 527 – Residential Rental Property for official guidance.
Using the Augusta Rule as a Business Owner
Many business owners legally leverage the Augusta Rule by renting their personal residence to their own company for legitimate business purposes.
For example, an S corporation or LLC can rent the owner’s home for:
- Annual board meetings
- Strategy sessions
- Client dinners or staff retreats
How It Works:
- The business pays rent to the homeowner for using the home (e.g., $2,000 per day).
- The homeowner excludes that income (up to 14 days per year) from their personal tax return.
- The business deducts the rental expense as a legitimate business expense.
This strategy effectively shifts money from the business to the owner without creating taxable income, as long as the arrangement meets IRS requirements.
Key Requirements and Documentation
To withstand IRS scrutiny, the arrangement must be bona fide and properly documented. Here’s how to stay compliant:
- Fair Market Rent:
The rent charged must be reasonable compared to similar short-term rentals in your area. Overstating rent could invalidate the deduction.
Use comparable listings from Airbnb or local event venues to establish fair market value.
- Business Purpose:
The business must have a legitimate reason for renting the home—such as meetings, planning sessions, or client events. Keep agendas and notes as evidence.
- Written Agreement:
Prepare a rental agreement or invoice showing the date, purpose, and rental rate.
- Proof of Payment:
The business should issue a check or bank transfer to the homeowner. Avoid “paper-only” transactions.
- No Double Dipping:
The homeowner cannot deduct expenses related to those rental days (e.g., utilities, mortgage interest).
Example: How the Augusta Rule Saves Taxes
Suppose you own an S corporation and rent your home to your business for 10 days during the year to host planning sessions.
- Fair market rent: $2,000 per day
- Total rent paid: $20,000
Result:
- You exclude $20,000 from your personal income.
- Your S corporation deducts $20,000 as a business expense.
- You’ve effectively transferred $20,000 from your business to yourself tax-free.
Limitations and Cautions
While powerful, this rule must be applied carefully:
- More than 14 Days:
Rent for 15 days or more, and all income becomes taxable.
- Related-Party Rentals:
Rentals to your own business must be bona fide and fairly priced.
- No Expense Deductions:
You cannot deduct rental expenses for those days.
- Documentation Is Key:
Keep rental agreements, meeting notes, and evidence of payment.
Supporting Authority
- IRC § 280A(g): Statutory basis for the Augusta Rule
- IRS Publication 527 – Residential Rental Property: Confirms income exclusion for rentals of less than 15 days
Conclusion
The Augusta Rule (IRC § 280A(g)) offers a rare opportunity for homeowners—especially business owners—to earn up to 14 days of tax-free rental income each year.
When properly documented, this strategy can create meaningful tax savings while keeping you fully compliant with IRS regulations. Just be sure to set a fair rental rate, document your business purpose, and maintain clear records.
Need Help Implementing the Augusta Rule for Your Business?
Contact us, we help business owners structure legitimate Augusta Rule arrangements that maximize tax savings while meeting all IRS documentation standards.
If you’re considering renting your home to your business—or want to explore advanced tax strategies—our CPAs can guide you step by step.
