The Augusta Rule (Section 280A): Renting Your Home to Your Business for Tax-Free Income
The Augusta Rule (Section 280A): How to Rent Your Home to Your Business Tax-Free
COACHING POINTS
- The Loophole: Under IRC Section 280A(g), if you rent your personal residence for 14 days or less per year, you do NOT have to report the rental income to the IRS. It is 100% tax-free.
- The Strategy: Your business rents your home for board meetings or retreats. The business deducts the rent as a valid expense (saving corporate tax), and you pocket the rent personally (paying $0 tax).
- The Requirement: The transaction must be “Bona Fide.” There must be a business purpose, and the rent must be “Fair Market Value” (comparable to a hotel).
Why pay the Hilton $1,000 for a conference room when you can pay yourself? The Augusta Rule is one of the few instances where the IRS allows a “Double Dip”: A deduction for the payer and tax-free income for the payee. For a successful S-Corp or LLC owner, this simple strategy can shift $15,000+ per year from “Taxable” to “Tax-Free” with minimal effort.
Calculating the potential tax savings.
- Fair Market Rent: Large home meeting space = $1,200/day.
- Max Days: 14 Days.
- Total Transfer: $1,200 x 14 = $16,800.
- Tax Savings:
- Business Deduction (21% Corp + State): ~$4,200 Saved.
- Personal Tax Avoided (37% Bracket): ~$6,216 Saved.
- Total Alpha: ~$10,400+ Net Benefit. IRC § 280A(g)
What-If Scenario: Monthly Board Meetings
Setup: S-Corp Owner holds 1 meeting/month (12 days total).
| Method | Corporate Cash Flow | Personal Cash Flow | Net Tax Paid |
|---|---|---|---|
| Dividend Distribution | -$15,000 (No Deduction) | +$15,000 (Taxable Dividend) | ~$3,000 (20% Qual Div) |
| Augusta Rental | -$15,000 (Deductible) | +$15,000 (Tax-Free) | $0 |
Visualizing the Wealth Transfer
*Figure 1: Net Cash Retained. The Green bar (Augusta) is significantly higher because zero tax friction eats into the transfer.*
Execution Protocol
COACHING DIRECTIVE
- Do This: If you own a profitable business and have a home suitable for meetings. It is the easiest $10k-$20k deduction you are currently missing.
- Avoid This: Renting for 15 days or more. If you hit Day 15, the entire income becomes taxable. Stick strictly to 14 days or less.
What is the Augusta Rule?
Named after the Masters Golf Tournament, IRC Section 280A(g) allows homeowners to rent out their primary or secondary residence for up to 14 days per year without having to report the rental income. The income is 100% tax-free.
How does a business owner use this?
Your S-Corp or LLC rents your home for monthly board meetings or strategy retreats. The business pays a fair market rent to you. The business deducts this payment as a ‘Rent Expense’, and you receive the money tax-free.
What is ‘Fair Market Rent’?
You cannot charge exorbitant rates. The rent must be comparable to what a local hotel or conference center would charge for a similar meeting space and amenities. Documenting comparables is essential for IRS compliance.