The Augusta Rule: Secrets To Earning Tax-Free Rental Income

If you own a home in the U.S., you may have a legal way to earn rental income without paying a cent in taxes on it. The Augusta Rule, also known as IRS Section 280A, lets you rent out your home for two weeks each year and keep that rental income tax-free. 

For business owners, this can become a smart tax strategy that shifts money from your company to you, legally, while reducing your taxable business income.

Let’s break down how the Augusta Rule works, who qualifies, and how you can use it in your business without stepping outside the IRS’s rules.

What Is the Augusta Rule?

The Augusta Rule comes from IRS Section 280A. It allows you to rent your personal residence for 14 days or fewer each year without reporting the rental income on your personal tax return. 

This rule first gained attention in Augusta, Georgia, where homeowners rented their homes to visitors during the Masters Golf Tournament. Today, it applies to any qualifying U.S. homeowner, regardless of their location.

For business owners, the Augusta Rule allows your company to rent your home for legitimate business purposes, such as board meetings, planning sessions, or client events. You can then deduct the rental payment as a business expense. 

For homeowners renting out their property to individuals, you don’t report that rental income as personal income, and you can’t deduct any expenses incurred related to the rental, such as cleaning. 

How Does the Augusta Rule Work?

To use the Augusta Rule correctly, you must meet specific requirements:

• The 14-Day Rule: You can only rent your home for 14 days or fewer per year under this rule. If you exceed 14 days, the tax-free benefit is forfeited, and you must report all rental income.
• Primary Home: The IRS considers the property your personal residence if you use it for more than 14 days or at least 10% of the total rental days in the year (whichever is greater). For the Augusta Rule to apply, the home must be located in the United States and treated as personal-use property, not a full-time rental.
• Fair Market Rent: The rent must be reasonable based on what similar properties charge in your area. For example, if comparable meeting spaces rent for $500 a day, charging your business $1,500 a day is not reasonable.

Additional Considerations When Renting to Your Business

• Legitimate Business Purpose: If you rent your home to your business, you must have a valid reason for the rental. This could include hosting a strategy meeting, training session, or client workshop. Note that social gatherings don’t count.
• Separate Business and Personal Funds: Your business must pay you from its bank account, and you should deposit the payment into your personal account.
• Documentation: You must secure proof of the rental, including:
  • A signed rental agreement
  • Meeting agenda or minutes
  • Photos of the setup
  • Proof of fair market rental value (quotes or listings from similar spaces)

Who Qualifies for the Augusta Rule?

The Augusta Rule can work for more than just business owners, though they’re the ones who often most benefit from it. If you own a U.S.-based home that serves as your primary home, you could qualify for this tax-free benefit.

Homeowners Renting Occasionally

If you rent your home for fewer than 14 days, say during a major local event, you can keep that income tax-free. This applies whether you rent to friends or someone completely unrelated, as long as the rent matches fair market value.

Business Owners Renting to Their Own Company

This is the most common way people use the rule. Your business, whether it’s set up as an S corp, C corp, LLC, or partnership, can rent your home for legitimate purposes. The business writes off the rental expense, and you get to keep that income tax-free.

Who Doesn’t Qualify

The Augusta Rule won’t apply to:

• Owners of full-time rental properties
• Sole proprietors and disregarded single-member LLCs renting to themselves
• U.S. homeowners whose property is outside the United States
• Individuals renting their home for more than 14 days per year

Tax Advantages of the Augusta Rule

1. Tax-Free Income

You can collect up to 14 days’ worth of rental payments each year without reporting that income on your personal tax return, as long as you adhere to the rules and properly document the rental.

2. Business Tax Deduction

When your business rents your home for a valid business purpose, the payment counts as a deductible expense. This directly reduces your business’s taxable income, which can lower the amount of tax your company owes.

3. No Extra Rental Reporting

As long as you stay under the 14-day limit and meet the other requirements, you don’t have to file rental income schedules or report the rental on your tax return. That means you get the benefit without adding more complexity to your tax filing.

4. Leverage an Asset You Already Own

Your home can work for you beyond just being a place to live. The Augusta Rule allows you to use it as a temporary, legitimate business venue without converting it into a rental property or forfeiting personal use.

5. Simple to Implement

Once you’ve established fair market rent, drafted a standard rental agreement, and created a process for documenting meetings or events, the Augusta Rule becomes an easy annual tax strategy to maintain.

Augusta Rule Example

You own a U.S.-based home in Colorado and run a small design agency. This year, you decide to host a three-day creative workshop for your team instead of renting a downtown co-working space.

To set your rate, you look up short-term meeting rentals in your area and see that similar spaces go for $400 a day. You keep the listings as proof and set your rental fee at $1,200 for the three days. Your business and you sign a simple rental agreement, and the payment comes from your business account directly into your personal account.

When tax time comes, your business deducts the $1,200 as a rental expense. On your personal tax return, you don’t report the amount because the rental lasted fewer than 14 days and met all Augusta Rule conditions.

FAQs About the Augusta Rule

Does my business need to issue a 1099 for rent payments made under the Augusta Rule?

In most cases, you don’t need to issue a  1099 form for tax-free rental income under the Augusta Rule. Some business owners still do it for documentation purposes, but it’s not an IRS requirement if the rental meets the 14-day exemption. If you’re unsure, check with your tax professional to keep your reporting consistent.

Do I have to report Augusta Rule rental income on my tax return?

No, you don’t report rental income if you rent your home for 14 days or fewer in the year under the Augusta Rule. The IRS treats it as tax-free income, so it doesn’t appear on your Form 1040 or Schedule E. Just make sure you don’t go over the 14-day limit, or the entire amount becomes taxable.

Where does my business deduct Augusta Rule rent payments?

Your business lists the expense as rent on its tax return. For an S corporation, it goes on Form 1120S; for a C corporation, it’s on Form 1120; and for a partnership, Form 1065. Always match the expense to the correct line item for rent or business use.

Can I include food, drinks, or other extras in the rental fee?

No. Since you’re not reporting the rental income on your personal return, you can’t deduct costs like meals, drinks, cleaning, or advertising tied to that rental. Keep the fee limited to the use of your home itself so it stays within Augusta Rule guidelines.

Is the Augusta Rule really a legitimate tax strategy?

Absolutely. It’s written directly into IRS Section 280A and has been used for years by business owners to lower taxable income. Like any tax rule, it works best when you follow it exactly and keep accurate records to support your deduction.

Wrapping It Up

The Augusta Rule provides a legal, IRS-approved method to convert your home into a short-term, tax-free income source each year. If used correctly, it delivers real savings without adding complexity to your tax return. The key is to follow the rules exactly and back every detail with solid documentation.

If you want to see exactly how this strategy could fit into your business, let’s talk. Book a free 30-minute meeting and we’ll walk you through the steps, review your eligibility, and help you put it into action the right way.