What Is the Augusta Rule and How Can You Benefit from It?
The Augusta Rule is a tax exemption that was first established in the 1970s to benefit homeowners in Augusta, Georgia, during the Masters Golf Tournament. Officially known as Section 280A of the IRS tax code, the rule allows homeowners to rent out their personal residence for up to 14 days per calendar year without having to report the rental income on their tax returns. Today, homeowners across the United States can take advantage of this rule as part of their tax planning strategy.
How Does the Augusta Rule Work?
- Personal Residence: The property rented must be a personal residence, which could be a primary home, secondary home, vacation home, or other eligible properties like apartments or cabins.
- 14-Day Limit: Homeowners can rent out their property for a cumulative total of 14 days throughout the year, without being required to declare the income.
- Fair Market Value: The rent charged must be comparable to the market value for the area, time of year, and demand.
- No Deductible Expenses: Expenses related to the property for these 14 rental days cannot be deducted for tax purposes.
How Can Small Business Owners Use It?
Small business owners can leverage the Augusta Rule by renting out their personal home for business purposes, such as company meetings, retreats, or conferences. The business can then deduct the rental expenses as a business expense, while the homeowner receives up to 14 days of tax-free rental income. However, strict documentation and proof of fair market value rental rates are required to comply with IRS regulations. Additionally, business owners cannot use this rule if they already claim the "business use of home" tax deduction.
By reducing taxable income while generating rental revenue, the Augusta Rule offers a win-win for both homeowners and business owners looking for a smart tax strategy.
