The Augusta Rule: Rent Out Your Home For Tax-Free Rental Income

The Augusta Rule is one of the biggest tax loopholes for business owners. It’s so good that it seems too good to be true..

Here’s how it works.

If you use your home as a residence, you can rent it out for up to 14 days per year and exclude that rental income from your gross income. In certain cases, a business can pay you fair-market rent for legitimate business use of your home. 

On the business side, the rent may be deductible if it qualifies as an ordinary and necessary expense, the rate is reasonable, and proper documentation is kept.

If you’re curious about how this works in practice and the rules you need to follow, read on.

What is the Augusta Rule?

The Augusta Rule is a tax provision that lets homeowners rent out their residence for up to 14 days per year without paying federal income tax on that rental income. 

Since the home is treated as a residence, you cannot deduct expenses for those rental days, but the income itself is excluded from your gross income.

The rule is codified in Internal Revenue Code Section 280A(g). It originated in the 1970s when homeowners in Augusta, Georgia sought relief from taxes while renting out their houses to visitors during the Masters Tournament. Although the nickname stuck, the law applies nationwide and is not limited to Augusta residents.

Normally, rental income is fully taxable. Section 280A creates an exception by excluding income from short-term rentals of a residence for fewer than 15 days per year. Today, any qualifying homeowner across the United States can potentially benefit from this exclusion, provided the property is used as a residence.

The Augusta Rule for Business Owners

Any homeowner may use the Augusta Rule if their property qualifies. But business owners may unlock additional benefits when they also operate through a separate business entity.

If your business pays fair-market rent to use your home for genuine business purposes, two outcomes may apply:

✅ For you as the homeowner: The income may be excluded under Section 280A(g), as long as the residence was rented for fewer than 15 days.

✅ For the business: The rent may be deductible if it qualifies as an ordinary and necessary expense, the amount is reasonable, and detail records are kept.

How Business Owners Might Use It

Instead of renting third-party venues, a business could use your home for:

The key requirements are:

📝 Note: Even though the rental income is excluded, homeowners cannot deduct rental-related expenses for those days. The benefit comes from excluding the income, not offsetting expenses.

The Rules Around the Augusta Rule

To benefit from the Augusta Rule, you need to follow certain requirements. Missing even one can disqualify the exclusion or the deduction.

Important things to keep in mind:

✅ Residence status: The property doesn’t have to be your primary residence. The rule applies to any dwelling unit you use as a residence during the year. Ownership must be in your name to claim the exclusion.

✅ Time limit: You can rent the property for up to 14 days per year and exclude the income. If you rent for 15 days or more, the entire rental income becomes taxable under standard rental rules.

✅ Fair-market rent: Rent charged must be reasonable and comparable to similar venues. Inflated rent is not deductible, especially in related-party situations. To substantiate your rate, consider gathering quotes from hotels, meeting venues, or short-term rentals.

✅ Separate business entity: For the rent to be deductible, the business usually must be a separate legal entity (e.g., S-corp, C-corp, or partnership). Sole proprietors and single-member LLCs typically cannot deduct rent paid to the owner’s own residence, since the taxpayer and the business are considered the same.

Even if you can’t deduct the rent as a sole proprietor, the Section 280A(g) exclusion may still apply if you rent the property to another party for fewer than 15 days.

How to Claim the Augusta Rule Tax Break as a Business Owner

Taking advantage of the Augusta Rule requires more than just using your home for business events. Proper documentation is what makes the tax break hold up. Every step should show that the rental was genuine, the rate was reasonable, and the business purpose was valid.

Step 1: Confirm eligibility.

Your home must qualify as a residence, though it doesn’t need to be your primary one. For the rent to be deductible on the business side, the payer should be a separate entity such as an S-corp, C-corp, or partnership. Sole proprietors and single-member LLCs generally cannot deduct rent paid to themselves because the business and the taxpayer are treated as the same.

Step 2: Set a fair price.

Charge a rental rate that reflects fair-market value. Substantiate it by gathering venue quotes, online listings, or comparable space rates. Unreasonable or inflated rent is unlikely to be deductible, especially in related-party arrangements.

Step 3: Document the business use.

Keep detailed records that show the business purpose, agenda, attendee list, dates, hours, and meeting notes. Retain proof of payment such as a canceled check or bank transaction record.

Step 4: Issue an invoice.

Prepare an invoice from you as the homeowner (acting as landlord) to the business. It should include the date, hours of use, rate, total amount, and stated business purpose.

Step 5: Pay through a traceable method.

Have the business pay you by check to create a clear paper trail. Other payment methods are possible, but a check provides the cleanest documentation.

📝 Note: The IRS focuses heavily on substantiation. Proper documentation supports both the exclusion (homeowner side) and the deduction (business side).

Final Thoughts

The Augusta Rule can be a valuable option for homeowners, especially business owners who want flexibility in how they use their space. The real benefit comes from pairing the exclusion with proper documentation and fair-market pricing.

It’s not a strategy that works for every situation, but for those who qualify, it may provide a simple way to reduce taxable income on a limited basis. If you think this could apply to you, the next step is making sure you understand the requirements and keep thorough records.

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