There is a line in the tax code that lets you collect rent and pay zero tax on it. No catch, no gray area, just a number: 14 days. That line is the Augusta Rule, and if you own a business, it can move money from your company to your pocket with neither of you paying tax on it.
Most people never hear about it, and the ones who do often use it wrong and hand the tax authorities a reason to look closer. Here is what the rule actually says, how to use it, what a fair rate looks like, and the records that keep the deduction standing if anyone asks.
The Augusta Rule allows homeowners to rent their residence for up to 14 days a year and keep the income completely tax-free.
It comes from Section 280A(g) of the Internal Revenue Code, a provision on the books since 1976, so this is settled law rather than a clever workaround. The nickname traces back to homeowners in Augusta, Georgia, who rent their homes during the Masters golf tournament and pocket a week of income without owing tax on it. Congress wrote the short-term exception so those residents would not get taxed on a few days of use, and the rule now applies nationwide. To use Section 280A here, the dwelling unit is used by the taxpayer as a residence. In plain terms it must be your personal home, used as a residence during the year, not an investment property. So you can rent your home for up to 14 days per year without reporting the rental income, and the days do not even have to be consecutive. You simply do not report rental income that falls inside the window.
The one hard line is the count. Exceed 14 days, holding the place for 15 or more, and the exception vanishes, which makes every dollar of that income taxed and reportable, not just the amount past day 14.
Here is where it gets interesting for anyone who runs a company, because you can be both the landlord and the tenant.
If you own a business and hold real meetings, your home can serve as the venue. The augusta rule works like this: across a short rental period your business uses your personal residence for a legitimate event, pays you a fair rate, and treats that payment as an ordinary business expense. You, the homeowner, exclude that same income personally. The business may deduct the rental expense on your business return, you receive the money untaxed, and the household ends up ahead on both sides of the ledger. That is the whole mechanism, and once you see how the rule works, the appeal is obvious.
One structural detail decides whether any of this holds. The arrangement needs a separate taxpayer on each side. An S corporation, C corporation, or partnership leasing from you personally is two different taxpayers, which the rule allows. A sole proprietor or single-member LLC is not, because you would be paying yourself, so the strategy does not work for those setups.
The rule rewards owners who actually use their home for company purposes, and the entity type matters more than the size of the business.
A small business owner running an S corporation is the classic fit, which is why shareholder meetings show up so often in these arrangements. The rule covers C corporations, partnerships, and multi-member LLCs too, so most owners with a real entity behind them can use the Augusta Rule. What you cannot do is invent business use where none exists. The events that hold up are genuine business meetings: board meetings, an annual strategy session, shareholder meetings, team retreats, and training days. This is how owners rent their personal residences to their own companies without inventing anything. A birthday party with a five-minute business update tacked on is not a meeting, and the IRS reads it that way.
If you already claim a home office deduction for the same space, tread carefully. You cannot write off your home as your daily place of business and also rent it to that business under this rule for the same use. The rule is for occasional, separate events, not your everyday work.
This is the number that gets people in trouble, so it deserves real attention.
The rate you charge has to reflect market value, meaning what an unrelated person would pay for comparable space in your area. To support it, pull rates from local hotel meeting rooms, event venues, coworking day rates, and Airbnb or VRBO listings for similar spaces during the same period. If similar venues run $500 for a full day, charging $5,000 will not pass as fair, and an inflated rate is the fastest way to draw a second look. The goal is a rental rate that would align with the fair value a stranger would accept, so the space is rented at a fair rental level you can defend. Price it too high and the IRS may cut the rent to a figure it considers reasonable.
Keep in mind a trade-off built into the rule. Because the rental income is excluded from your income, you cannot deduct the expenses tied to those days, things like cleaning or catering. The exclusion and the deduction do not stack on the personal side. You still keep your normal mortgage interest and property tax write-offs as usual.
The appeal comes down to a clean shift of income that nobody pays tax on.
The headline benefit here is tax-free income under the Augusta Rule for you, while your business trims its tax bill. Say your company pays $1,500 a day for four quarterly planning sessions, eight days total. The business may deduct the full $12,000 as a rental expense, and you report none of it. At a meaningful marginal rate, that is real tax savings on money that was going to leave the business anyway. The tax benefit is largest for profitable pass-through entities, where every dollar moved out as rent is a dollar that escapes tax at the owner level. No income cap applies, only the 14-day ceiling, so the size of the benefit tracks your home's fair rental value and your tax bracket. You pay no tax on the rental income at all, which is the point.
A strong arrangement and a sloppy one look identical until someone asks for proof, and then the gap is enormous.
The strategy has been promoted heavily, so IRS Augusta Rule reviews are common, and the weak versions get real scrutiny. What protects you is proper documentation, built as you go rather than reconstructed later. Keep a written rental agreement or invoice, a meeting agenda, an attendee list, minutes showing what was decided, proof the business paid you by check or transfer, your market-rate comparables, and a calendar tracking the rental days. The case every advisor points to is Sinopoli v. Commissioner, where an S corporation deducted more than $290,000 in rent over three years for monthly shareholder meetings. The Tax Court did not throw the strategy out, but it cut the deduction down hard because the rates were far above fair value and the substance was thin. The lesson is not that the Augusta Rule invites an audit. It is that an undocumented, overpriced version invites one, while a clean file rarely does.
A few specific mistakes turn a smart move into a problem, and they are easy to avoid once you know them.
Going over the line is the most common. Rent your home for more than 14 days and you lose the exclusion entirely, with the rental income becoming taxable from the first day. The exclusion only holds when the place is rented less than 15 days, and a residence rented for up to 14 keeps the break whether owners rent out their personal residence to a business or to event guests. Pricing the rental above fair market value is the next, since the agency can reduce the rent to a reasonable figure or challenge it outright. Holding no genuine business purpose is the third, because a meeting that exists only on paper is treated as personal use. And missing records sink an otherwise valid claim, since you have to prove the event happened the way you said. Ensure the business has a real reason to meet, stay under 15 days, price it honestly, and keep the file, and the deduction holds.
The rule is simple to describe and easy to botch, which is exactly why the setup matters.
Getting it right means confirming your entity qualifies, supporting a defensible rate, papering each meeting properly, and tracking the day count so you never drift past 14. For a CPA firm handling many small business clients, that is steady, detail-heavy work where one weak file can undo the whole benefit. This is the kind of task an offshore partner is built to carry. Madras Accountancy supports U.S. CPA firms with the entity analysis, market value research, and records that make a Section 280A position defensible, whether the client runs an S corporation or a partnership. Clean books and a complete file are what keep a deduction like this off the list of common audit issues.
Used well, the rule is found money with a paper trail. Used carelessly, it is a deduction waiting to be reversed.
The Augusta Rule is a tax provision under Section 280A(g) that lets a homeowner rent out a personal residence for up to 14 days a year without reporting the rental income. The income is tax-free, and the rule applies to primary homes, second homes, and vacation homes nationwide.
An owner can rent their home to their own business for legitimate events like board or shareholder meetings. The business writes off the rent as an expense, and the owner receives the rental income tax-free under the rule. It works only when the business is a separate taxpayer, such as an S corporation, C corporation, or partnership.
Up to 14 days per year. The 14-day limit is absolute, so if you rent it for 15 days or more, the exclusion disappears and all of the rental income becomes taxable, not just the days beyond 14. The days do not have to fall back to back.
A fair rental value is what an unrelated party would pay for comparable space in your area, supported by local hotel meeting rooms, event venues, coworking rates, or Airbnb and VRBO listings. Pricing the rental above fair market value is a common trigger for IRS scrutiny.
The rule itself does not. What draws an audit is an inflated rental rate, no genuine business purpose, or missing documentation. In Sinopoli v. Commissioner, the Tax Court reduced a large Augusta Rule deduction because the rent far exceeded fair value and the records were weak.
Keep a written rental agreement, a meeting agenda, an attendee list, minutes, proof of payment by check or transfer, fair market comparables, and a calendar of rented days. This paperwork is what defends the deduction if the agency reviews it.
No. The rule requires a separate taxpayer renting from you, and a sole proprietor or single-member LLC is the same taxpayer as the homeowner. It works for S corporations, C corporations, partnerships, and multi-member LLCs.
No. Because the rental income is excluded from your income, you cannot deduct expenses tied to those days, such as cleaning or catering. You do still keep your regular mortgage interest and property tax deductions.
This is general information about the Augusta Rule itself, not tax advice for a specific situation. The rules around fair rental value, business use, and records are detailed, so consult with a tax professional before claiming the deduction.
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