The Augusta Rule (Section 280A): How to Rent Your Home to Your Business Tax-Free
The Augusta Rule (Section 280A): How to Rent Your Home to Your Business Tax-Free
COACHING POINTS
- The Double Win: Usually, when a business pays you, it’s taxable income. The Augusta Rule creates a rare anomaly: The business gets a tax deduction, but you don’t report the income. It effectively wipes out taxes on that money entirely.
- The 14-Day Cap: The exemption applies only if you rent the home for 14 days or fewer per year. If you rent it for 15 days, the entire exemption is lost, and all income becomes taxable. Precision is key.
- The Paper Trail: You must treat this like a real business transaction. This means creating a rental agreement, invoicing your business, and keeping minutes of the meetings held at your home to prove a valid business purpose.
Most tax strategies involve “deferring” taxes. The Augusta Rule involves “eliminating” them.
By turning your home into a temporary conference center for your monthly board meetings, you can legally shift thousands of dollars from your business to your personal pocket, bypassing the IRS completely.
Source: IRC Section 280A(g)
Scenario: You hold monthly strategy meetings at your home (12 days/year).
- Comparable Rate: A luxury hotel conference suite costs $1,500/day.
- Transaction: Your S-Corp pays you $1,500 x 12 = $18,000.
- Business Impact: S-Corp deducts $18,000 expense. (Saves ~$5,400 in corp/pass-through tax).
- Personal Impact: You receive $18,000. Reportable Income: $0.
- Total Benefit: You moved $18,000 out of the business without paying a cent in income tax.
What-If Scenario: Taking a Bonus vs. Augusta Rental
Goal: Extract $20,000 from the business.
| Method | Gross Amount | Taxes (Fed + State + FICA) | Net Cash in Pocket |
|---|---|---|---|
| W-2 Bonus | $20,000 | ~$8,000 (40%) | $12,000 |
| Augusta Rental | $20,000 | $0 (0%) | $20,000 |
Result: The Augusta Rule puts 66% more cash in your pocket compared to a standard bonus, simply by changing the label of the payment.
Visualizing the Tax-Free Yield
| Strategy | Net After-Tax Income ($) |
|---|---|
| Standard Bonus (Taxed) | 12000 |
| Augusta Strategy (Tax-Free) | 20000 |
*By characterizing the payment as a short-term rental (under 14 days), you bypass Income Tax and Payroll Tax completely.
Execution Protocol
Get quotes from local hotels or Peerspace for a meeting room comparable to your home’s size/amenities. Print these quotes to PDF. If similar spaces rent for $1,000/day, that is your cap.
Draft a formal rental agreement between your Business (Tenant) and You (Landlord) for the specific dates. Even though you are both parties, the paperwork must exist to satisfy an audit.
Have the business write a physical check or bank transfer to your personal account. Label it “Rent Expense.” Do not issue a 1099-MISC to yourself (rental income under 14 days does not require a 1099).
COACHING DIRECTIVE
- Do This: If you own an S-Corp or C-Corp and have a home suitable for hosting meetings. It is the easiest ~$20k tax-free withdrawal you will find.
- Avoid This: If you are a Sole Proprietor (Schedule C). You cannot rent a home to yourself legally. You need a separate business entity. Also avoid exceeding 14 days—day 15 ruins everything.
Frequently Asked Questions
What is the Augusta Rule?
It allows homeowners to rent their residence for up to 14 days per year without reporting the income. It was created for residents near the Augusta Masters golf tournament but applies to everyone.
How does a business owner use it?
A business owner rents their personal home to their business for meetings. The business gets a tax deduction for the rent expense, and the owner receives the rental income tax-free.
Is there a limit on the amount?
The rate must be reasonable (Fair Market Value). You cannot charge exorbitant rates. You must document comparable prices (e.g., hotel conference rooms) to justify the expense to the IRS.