What is the Augusta Rule?
The Augusta Rule, known to the IRS as Section 280A,allows homeowners to rent out their home for up to 14 days per year withoutneeding to report the rental income on their individual tax return.
Originally created to protect residents of Augusta,Georgia who would rent out their homes to attendees of the annual Masters golftournament, the Augusta Rule applies to any taxpayer who owns a home in theUnited States, provided that your home is not your primary place of business.
How Does it Work for the Homeowner?
So long as the home you own is not your primary place ofbusiness, you can rent it out for up to 14 days and not report that income onyour individual tax return. The rent youcharge must be reasonable and in-line with what the rental market supports;charging $1000 per night when comparable houses rent for $200 per night is notconsidered reasonable!
Homeowners can rent their house to individuals lookingfor vacation opportunities or they can rent their house to a business owner whointends to use it for business purposes.
Shifting Income from Your Business
If you are a business owner and do not use your home asyour primary place of business, employing the Augusta Rule can be an effectivestrategy for moving income away from your business and shifting it to personalincome, where there would be no tax consequence.
For example, as a business owner, you host a monthlymeeting with your Board of Directors. Under the Augusta Rule, your business can pay you a reasonable amount torent your house to conduct the once-per-month meetings. Provided that the total rental period doesn'texceed 14 days and the rent charged is reasonable, your business is able todeduct the rent payment on the business tax return and you won't have to reportthis as income on your personal taxes!
Having documentation to support your claiming this as abusiness deduction is critical-to prove the rent was reasonable, you couldprint rental quotes for similar meeting locations. To document that a meeting occurred, youcould keep minutes or other records of business discussions.
