The Augusta Rule: What It Is, Where It Came From, and How Business Owners Use It
The 14-day home rental rule gets talked about constantly online. Here is how Grant explains it to clients, including the part most people leave out.
“What is the Augusta rule, where did it come from, and how can I use it for my business?”
The short version
- The Augusta rule is Section 280A(g). It allows you to rent out your primary residence for 14 days or less in a year and receive that income completely tax-free.
- The catch: the expenses associated with that income are not deductible.
- Business owners rent their home to their business for things like employee meetings or board meetings. You have to have an ordinary and necessary reason.
- Charge a reasonable rate. Overcharging the rent is the biggest thing they look at in an audit.
The short answer
I get asked a lot about the Augusta rule. A lot of people come and ask me about it. What is it? Where did it come from? How can I use it for my business? I hear about it all the time online. So let's just talk about it.
The Augusta rule is essentially Section 280A(g). It is a provision that allows you to rent out your primary residence for 14 days or less in a year. You can receive that income completely tax-free.
Why it's called the Augusta rule
Section 280A(g) is the actual code section, but the nickname comes from the Masters tournament that's held in Augusta, Georgia every year.
Really rich people got a pretty good lobby together. They went up to Washington, and somehow they got them to agree that you could rent out your primary residence for 14 days or less in a year and get all that income tax-free. That's where the name comes from: Augusta, Georgia, because of the Masters tournament.
The part most people leave out
However, the expenses associated with that income are not deductible. That's the one caveat a lot of people don't really talk about. So the income is tax-free, and the expense is not deductible.
Where people get in trouble
Make sure that you charge yourself a reasonable rate. Whenever people get audited, that's the biggest thing they look at: they overcharge the rent and try to get more tax-free income than what they're actually entitled to take.
How business owners use it the right way
Now, how do business owners take advantage of this and get tax-free income? They essentially rent out their home to their business for some type of employee getaway, employee meetings, board meetings, whatever the case may be.
You have to have some type of ordinary and necessary reason for the rental of the residence.
Other than that, that's essentially what the Augusta rule is, and I highly recommend every business owner at least ask their tax professional about it.
Frequently asked questions
What code section is the Augusta rule?
The Augusta rule is essentially Section 280A(g). It is a provision that allows you to rent out your primary residence for 14 days or less in a year.
Is Augusta rule income taxable?
You can receive that income completely tax-free. However, the expenses associated with that income are not deductible.
Can I rent my home to my own business?
Business owners rent out their home to their business for some type of employee getaway, employee meetings or board meetings. You have to have some type of ordinary and necessary reason for the rental, and you need to charge a reasonable rate.
What do auditors look at with the Augusta rule?
Whenever people get audited, the biggest thing they look at is whether they overcharged the rent and tried to get more tax-free income than they were actually entitled to take.