The Augusta Rule: How to Shift $20,000 from Your Business to Your Pocket Tax-Free
The Augusta Rule: How to Shift $20,000 from Your Business to Your Pocket Tax-Free
COACHING POINTS
- The Loophole: IRS Code Section 280A(g), known as the Augusta Rule, allows homeowners to rent out their primary (or secondary) residence for up to 14 days per year without reporting the rental income on their tax return. It is 100% tax-free.
- The Strategy: Business owners can rent their own home to their own business for board meetings, strategy retreats, or video shoots. The business gets a tax deduction (Rent Expense), and the owner gets tax-free income.
- The Requirement: The rental price must be “reasonable” (Market Rate), and there must be a legitimate business purpose. You cannot just write a check for $50,000 for a one-day meeting.
Originally created to protect residents of Augusta, Georgia, who rented their homes during the Masters Golf Tournament, this rule is now the ultimate tax arbitrage for small business owners. It creates a rare “double dip”: The payer (your S-Corp) gets a deduction, and the payee (You) pays zero tax. It effectively moves money from a taxable bucket to a tax-free bucket legally. Source: IRC Section 280A(g) / Masters Tournament Exception
Scenario: You own an S-Corp. You hold 12 monthly board meetings at your home.
- Market Rate: A comparable hotel conference room costs $1,500/day.
- The Transfer:
Your S-Corp writes a check to YOU for $18,000 ($1,500 x 12 days).
S-Corp Impact: -$18,000 Expense (Reduces taxable profit). - The Outcome:
Your Personal Tax: $0. (Excluded from income under 280A).
Total Tax Saved: If your marginal rate is 35%, you saved $6,300 in taxes simply by holding meetings at your dining table instead of the office.
Net Tax Savings Calculation ($)
| Strategy | Total Tax Bill ($100k Profit) |
|---|---|
| Standard (Take Salary/Dividend) | 30000 |
| Augusta Rule (Rent Deduction) | 23700 |
*The Augusta Rule acts as a tax shield, wiping out the tax liability on the first $15,000-$20,000 of income distributed from your company.
What-If Scenario: The “Audit Proof” Paper Trail
Comparison: Doing it sloppy vs. Doing it right.
| Documentation Level | IRS Disallowance Risk (Score 0-100) |
|---|---|
| Just wrote a check (No minutes) | 95 |
| Meeting Minutes + Hotel Comparables | 5 |
Execution Protocol
Go to Peerspace.com or call a local Marriott. Get a quote for a “Conference Room + Catering” for 8 hours. Print this quote to your PDF file. If the quote is $1,000, that is your defensible daily rate.
Pick 14 specific dates (e.g., the first Friday of every month + 2 strategic planning days). Create an “Invoice” from you (Landlord) to your Business (Tenant) for facility rental on these dates.
Ideally, the business should NOT issue a 1099 to you for this rent, because issuance implies it is taxable income. Just document it internally. If a 1099 is issued by mistake, you must report it on Schedule E and then negate it with a specific “Section 280A Exclusion” line item to avoid tax.
COACHING DIRECTIVE
- Do This: Use this strategy if you have a legitimate business (LLC/S-Corp). It is one of the easiest “low hanging fruit” deductions available.
- Avoid This: Exceeding 14 days. If you rent it for 15 days, the entire 15 days become taxable. The cliff is steep. Stop at 14.
Frequently Asked Questions
Can employees do this?
No. This is primarily for business owners. Employees cannot deduct unreimbursed business expenses (TCJA 2017), and receiving rent from an employer is messy.
Does it cover food?
No. The Augusta Rule covers the rental of the space only. Food and catering should be expensed separately by the business as “Business Meals” (50% deductible).
What about my vacation home?
Yes! The rule applies to any dwelling unit you use as a residence. You can rent your beach house for 14 days and your main home for 14 days? No. The 14-day limit is usually applied per taxpayer (property aggregate), though aggressive CPAs argue per property. Stick to 14 days total to be safe.