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The Augusta Rule – A Smart Tax Saving Strategy for Business Owners
Introduction
Running a business comes with many tax-saving opportunities, but one of the lesser-known strategies with significant potential is the “Augusta Rule,” officially known as Section 280A(g) of the Internal Revenue Code. This provision allows homeowners, including business owners, to earn tax-free income by renting out their home—even to their own business—under specific conditions.
This article breaks down what the Augusta Rule is, how it works, and how business owners can use it to legally reduce their taxes by thousands of dollars each year.
What Is the Augusta Rule?
The Augusta Rule originates from Augusta, Georgia, where homeowners would rent out their homes to attendees of the Masters golf tournament. These rentals were short-term, lasting less than 15 days, but brought in significant income.
Congress carved out a specific tax rule to benefit these homeowners—and that rule is now available to anyone who meets the conditions.
In simple terms:
If you rent out your home for 14 days or less per year, you do not have to pay income tax on that rental income. That means the rental income is completely tax-free.
Under Section 280A(g):
The property must be used as a personal residence (your home).
It must be rented out for 14 days or fewer in a calendar year.
You are not required to report the income on your tax return.
You cannot deduct rental expenses related to that income.
How Business Owners Can Use the Augusta Rule
Business owners in Central Florida cities such as Orlando, Winter Park, Altamonte Springs, Maitland, and Longwood might be interested to know they can rent their primary residence (or even a vacation home) to their own business entity for legitimate business purposes, such as:
Board meetings
Strategic planning retreats
Training sessions
Company parties or client events
If done correctly, this strategy creates a legitimate tax deduction for the business—and tax-free income for the homeowner.
Here’s how it works step by step:
You (the business owner) personally own your home.
Your business (LLC, S-Corp, or C-Corp) needs space to conduct meetings or events.
The business rents your home for 14 days or less in the year at a fair market rental rate.
The business pays you, and deducts the rental expense on its tax return.
You do not report that rental income on your personal tax return—it's completely tax-free.
Example Scenario
Let’s say John lives in Orlando Florida and owns a small S-Corporation in Maitland, Florida that provides consulting services. He also owns his home, which has a beautiful conference room and large dining area, perfect for business strategy sessions.
John’s business holds monthly strategic meetings, and he decides to host one full-day session per month at his home for 12 months, staying within the 14-day annual limit.
John determines that renting a comparable venue in his area would cost $1,200 per day.
His business pays him $1,200 for each meeting day.
Over the year, the business deducts $14,400 ($1,200 x 12 days) as a business expense.
John receives $14,400 in tax-free income—not reportable on his individual tax return.
This means:
John's business gets a full deduction.
John pays zero income tax on that $14,400.
No payroll taxes, no federal income tax, no state income tax—it’s completely legal and tax-free.
Why the Augusta Rule Matters to Business Owners
Here are the main benefits for a business owner:
1. Tax-Free Personal Income
Any income you receive under the Augusta Rule is not subject to federal or state income tax. That’s a rare and powerful benefit under the tax code.
2. Business Expense Deduction
Your business can deduct the rental payment as an ordinary and necessary business expense, as long as the rental arrangement is documented and the event has a legitimate business purpose.
3. No Payroll or Self-Employment Taxes
Unlike wages or contractor income, rental income under the Augusta Rule is not subject to Social Security, Medicare, or self-employment tax.
4. Flexible and Scalable
The rule applies to any personal residence—whether it's your main home, a beach house, or a mountain cabin—as long as you meet the 14-day rule.
Key Requirements to Stay Compliant
To use this strategy legally and safely, here are the steps you must follow:
Use a Legitimate Business Entity
Your business must be a separate legal entity (LLC, S Corporation, C Corporation). Sole proprietors and disregarded entities cannot rent to themselves under this rule.
Document the Rental Purpose
There must be a real business purpose for the rental:
Meeting agendas
Sign-in sheets
Meeting minutes
Invoices or contracts
Proof of payments
Determine Fair Market Rent
You should charge what a third-party venue would charge for the same use. You can use:
Local hotel meeting space rates
Conference room rental comparisons
Quotes from event venues
Keep a written record of how you determined the fair rental value.
Stay Within 14 Days
The Augusta Rule only applies if the total rental period is 14 days or fewer per year. If you go over 14 days, you must report all rental income and may be subject to taxes.
Don’t Deduct Home Expenses
Because the income is tax-free, you are not allowed to deduct any related expenses (mortgage, utilities, depreciation) for those rental days.
Potential Tax Savings
Let’s look at a rough estimate of how much a business owner could save.
Annual Rent Paid | Tax Rate | Tax-Free Income | Estimated Tax Savings |
$5,000 | 30% | $5,000 | $1,500 |
$10,000 | 30% | $10,000 | $3,000 |
$14,000 | 37% | $14,000 | $5,180 |
So, by using the Augusta Rule, a business owner in a 30% tax bracket who rents their home for 14 days at $1,000/day could pocket $14,000 tax-free and reduce their business’s taxable income by the same amount.
Common Misconceptions
“This sounds too good to be true.”
It’s not. The rule is codified in the Internal Revenue Code Section 280A(g) and is commonly used by tax-savvy business owners and their advisors.
“I can rent to myself personally.”
No—you cannot rent your home to yourself personally. The business must be a separate legal entity.
“I don’t need to document anything.”
Wrong. Documentation is key. Without proof of business purpose, meeting records, and rental justification, you could lose the deduction in an audit.
How to Get Started
Talk to Your CPA or Tax Advisor
Ensure your business qualifies and that you're following IRS rules.Create a Rental Agreement
Have a written agreement between you and your business, outlining:
Dates of rental
Purpose of use
Amount charged
Set Fair Rental Rates
Get quotes for comparable venues to justify the pricing.Document Events Thoroughly
Maintain:
Meeting agendas
Attendee lists
Proof of payment (e.g., check or bank transfer)
Track the Days
Ensure the total rental days never exceed 14 per year.
Conclusion
The Augusta Rule (Section 280A(g)) is one of the most powerful, yet underutilized, tax strategies available to business owners. It allows you to legitimately move income from your business to yourself—completely tax-free.
Used correctly, the strategy can help you:
Reduce taxable business income
Receive tax-free personal income
Increase overall tax efficiency
While the IRS allows it, documentation and proper setup are essential. With the help of a qualified tax professional, you can implement this strategy safely and start saving thousands of dollars per year—without increasing your audit risk.
At the Don Thomas CPA firm located in Maitland, Florida we have proactive accounting and tax professionals to help you save money in taxes by using tax strategies like the August Rule shown above.
To schedule a free consultation please visit our website: donthomascpa.com
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