The Augusta Rule (Section 280A): How to Rent Your Home to Your Business Tax-Free
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Result: Augusta Rule puts $2,500 – $4,000 more in your pocket.
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The Augusta Rule (Section 280A): How to Rent Your Home to Your Business Tax-Free
CORE INSIGHTS
- The Loophole: Section 280A(g) allows you to rent your home for up to 14 days/year without reporting the income.
- Business Deduction: Your business gets a tax deduction for the rent, and you get 100% tax-free income. It’s a perfect arbitrage.
- Market Rate: You must charge a “reasonable” rate comparable to local hotels or meeting spaces. Documentation is key.
For business owners, moving money from the business to yourself usually triggers tax. The Augusta Rule is a rare exception. It creates a “Tax-Free Tunnel” to shift corporate profits into your pocket by hosting board meetings at home.
What-If Scenario: The Monthly Board Meeting
| Distribution Method | Tax Impact | Net Cash ($12k Gross) |
|---|---|---|
| W-2 Bonus | Taxed (Inc + FICA) | ~$8,000 |
| Dividend | Taxed (Cap Gains) | ~$9,500 |
| Augusta Rent | Tax-Free | $12,000 |
Visualizing the Wealth Transfer
*Figure 1: Net Cash to Owner. The Augusta Rule (Green) transfers the full gross amount.*
Strategic Action Steps
1
Establish Value
Get quotes from local hotels for a meeting room. Save these as evidence of “Reasonable Market Rent.”
Get quotes from local hotels for a meeting room. Save these as evidence of “Reasonable Market Rent.”
2
Draft the Lease
Create a formal rental agreement between “Your Business” (Tenant) and “You” (Landlord). Specify dates and rates.
Create a formal rental agreement between “Your Business” (Tenant) and “You” (Landlord). Specify dates and rates.
3
Execute & Document
Hold the meetings. Take minutes. Have the business pay via check/transfer labeled “Rent.” Do NOT report on Schedule E.
Hold the meetings. Take minutes. Have the business pay via check/transfer labeled “Rent.” Do NOT report on Schedule E.
The Bottom Line: Who Should Choose What?
- S-Corp / C-Corp Owners: Highly recommended. One of the easiest “low hanging fruit” tax strategies.
- Sole Proprietors: Proceed with caution. You are renting to yourself, which is risky in an audit.
Frequently Asked Questions
What is the 14-Day Limit?
You can rent out your personal residence for up to 14 days per tax year tax-free. If you rent for 15 days, ALL income becomes taxable.
Can I use this if I am a sole proprietor?
It is riskier. The Augusta Rule works best for separate legal entities like S-Corps. Sole proprietors are effectively “renting to themselves.”
How do I determine the rental price?
You must charge a “reasonable market rate.” Obtain comparable quotes from hotels or conference centers to justify the cost.
Disclaimer: This content is for informational purposes only. Consult a qualified CPA.