The Augusta Rule, known to CPA’s as Section280A, a tax law that allows homeowners to rent out their home for up to 14 days per year without needing to report the rental income on their individual tax return. You read that right. No typo yet. Without needing to report the income.
Originally created to protect residents of Augusta, Georgia who would rent out their homes to attendees of the annual Masters golf tournament, the Augusta Rule applies to any taxpayer who owns a home in the United States, provided that your home is not your primary place of business.
So long as the home you own is not your primary place of business, you can rent it out for up to 14 days and not report that income on your ndividual tax return. Therent you charge must be reasonable and in-line with what the rental marketsupports. Let me give you an example. If you live in a modest 3-bedroom ranchin a small farm town, you cannot be charging $5,000 per night. You would not likehow the IRS responds to something like that. It’s got to be reasonable. Homeowners can rent their house toindividuals looking for vacation opportunities or they can rent their house toa business owner who intends to use it for business purposes.
If you are a business owner and do not use your home as your primary place of business, employing the Augusta Rule can be an effective strategy for moving income away from your business and shifting it to personal income, where there would be no tax consequence. For example, as a business owner, I host periodic meetings with my team. I’ll order catering and have everyone on the team will meet at my house. Under the Augusta Rule, my business can pay me (individual) a reasonable amount to rent my house to conduct the meetings. Provided that the total rental period doesn't exceed 14 days and the rent charged is reasonable, the business is able to deduct the rent payment on the business tax return and I won't have to report this as income on my personal taxes!
Have your documentation in place. Having documentation to support this as a business deduction is critical. You also need to prove the rent charged was reasonable. To do this, you could pull market values from sites like Airbnb & VRBO. To document that a meeting occurred, you could keep minutes or other records of business discussions.
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