Small business owners don’t realize the IRS gives them a legal way to move money from their business to their personal account completely tax-free.

It’s called the Augusta Rule, also known as the 14-Day Home Rental Rule. When set up correctly, it is one of the simplest and most powerful ways to reduce your taxable income while staying compliant.

Here’s how it works and how to document it correctly.

What Is the Augusta Rule

The Augusta Rule comes from IRS Code Section 280A(g). It allows homeowners to rent out their personal residence for up to 14 days per year and exclude that income from taxes.

The rule was created after residents of Augusta, Georgia began renting their homes during the Masters Golf Tournament. The IRS determined that short-term rentals of less than 15 days should not be treated as taxable income.

If you rent your home for 14 days or less during the year, that income is not taxable. This applies even if your business is the one renting the property.

That means your business receives a deduction while you personally receive the income tax-free.

Who Can Use It?

This strategy works best for S Corp or C Corp owners who have a clear separation between business and personal accounts.

If you operate as a sole proprietor, it does not apply because your business and personal income are reported together.

How to Use the Augusta Rule Correctly

To make this strategy work, you must follow a few important steps.

• There must be a legitimate business reason for the rental, such as hosting a team meeting, board retreat, or training session.
• Set a fair rental rate by checking local hotels, coworking spaces, or Airbnb listings and save screenshots as proof.
• Create a short rental agreement that lists the event, dates, and rate.
• Pay yourself from your business account and keep all records for backup.

These steps prove to the IRS that your rental is legitimate and properly documented.

When to File a 1099

If your business pays you more than $600 in rent for the year, you need to issue yourself a Form 1099-MISC.
On your personal tax return, reference Section 280A(g) to exclude the income from taxation.

Example: How It Adds Up

Here’s a simple example.

You host:

• Four quarterly board meetings at your home
  
• A three-day team retreat
  
• A one-day training event
  
  

Using fair market rental rates from local venues, these events total about $7,000 in rent for the year.
That is $7,000 your business deducts as an expense and $7,000 you personally receive tax-free.

If you are in a 37% tax bracket, that equals roughly $2,600 to $2,800 in tax savings.

Documentation Is Everything

The IRS only accepts this strategy if you can prove it.
Keep a file with your rental agreement, receipts, photos of the event setup, meeting agendas, and comparable rental rate documentation.
If you can show these records, your deduction will hold up under review.

Without proper documentation, this strategy can fail. Writing yourself a check without proof will likely result in a disallowed deduction.

When done correctly, it becomes an easy and legal way to move business income into personal income without paying extra tax.

Putting It All Together

The Augusta Rule is an IRS-approved way to pay yourself tax-free while giving your business a legitimate deduction.

All it takes is a real business reason, a fair rental rate, and strong documentation.

If you own an S Corp or LLC, this strategy can help you save thousands every year while staying fully compliant.

👉 Download the free Tax Savings Starter Kit at TaxSavingsPodcast.com/starterkit to learn how proactive planning helps business owners save $10,000 or more each year.

Transcript

[00:00:00] Introduction to the Augusta Rule

[00:00:00] Speaker: What if I told you that you could have your business rent your personal home for a couple of days each year, and the IRS lets you keep that income tax free? That's not a gimmick. It's the Augusta rule or the 14 day home rental rule, and most business owners have no idea that they can legally pull us off.

[00:00:15] Now, today I'm gonna show you exactly how it works and how you can ship taxable business income into tax-free personal income without triggering any kind of red flags.

[00:00:26] / Now you might have heard of this strategy or this concept all over TikTok or other social media, and they're either making it sound super easy, like just pay yourself and don't worry about it.

[00:00:35] Or you're hearing from other CPAs or advisors that rip it apart and say this isn't right. This wasn't the men way, the rule. And so what we're gonna go today is I'm gonna flush through all that out today so that you can walk away equipped with what you need to know. To do it right, do it effectively, and how you can actually make this work in your business because you can make it work in your business.

[00:00:54] You just gotta do it right. It is simply a great way to move money from your business, getting a business deduction to you personally paying no income taxes on it. You just need to dot your i's and you need to cross your T's and make sure that we're following the rules for this and have documentation to back it up and support it.

[00:01:10] Origins of the Augusta Rule

[00:01:10] Speaker: So what is the Augusta rule or the 14 day home rental rule? And where this really stemmed from was Augusta, Georgia. That's why they call it the Augusta Rule. And Augusta is a town in Georgia where they hold the master's tournament every single year. And this is a small town and a lot of people come in for this tournament and they don't have enough places to stay.

[00:01:28] So the renting houses around the golf course out and they make a lot of money renting their home out, but they're only renting it for a few days when people are in town. For the Master's tournament, and so the rule stemmed from this concept, but people were having to pay. Rental property taxes on those where they rent their home out for a week, they'd have to pay taxes on that income that they received from that.

[00:01:48] And the iris said, that's not really a rental property. And so they came up with this rule that said, if you rent your home for 14 days or less, it's not taxable income to you. And so let me read directly from the iris code. This is from Iris code section two 80 a g. And it says if a dwelling unit is rented for less than 15 days, income is not included.

[00:02:08] And there's no deduction allowed for rental expenses. So again, if it's less than 15 days or 14 days or less, income is not included, which is great, and there's no deduction allowed for rental expenses. We don't have any income, so there's no need for rental expenses. And anyways, now that's where the super powerful thing is behind this.

[00:02:27] 'cause Ira said that's not a rental property if it's 14 days or less. Now, these are total rental days throughout the year. It's 14 or less. So I've had a lot of people ask that say does it have to be 14? No, it can be 14 or less. And does the 14 have to happen all back to back? If I do a rental two days here and then two days next month and then two days later and I'm under that 14 for the whole year.

[00:02:49] Is that still count? Yes. What the iris looks at from January, December is the total rental days, 14 days. Or less, if so, not taxable income to you and you can get a business deduction for it. So essentially when you rent your personal home for 14 days or less in a calendar year. That income is not taxable.

[00:03:06] Now this could be due to a Super Bowl that's maybe in your town or a golf event like the Master's tournament, or it could be something else. But this is also true even if you rent the home to a business that you own. And that's some of the powerful pieces behind that. So we're gonna talk about exactly how to do that now, real quick.

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[00:03:55] How to Properly Implement the Augusta Rule

[00:03:55] Speaker: So with this rule, how do we use it properly? Because we can't just write ourselves a random check with no actual activity or proof.

[00:04:02] And believe me, I've seen this, I've talked to someone the other day that has been doing this. They're just written themselves a check for $20,000 throughout the course of the year and say, oh yeah, that's rental income. 14 days or less, not taxable. To me, that's not how we do this. You can't just write yourself a random check with no actual activity or proof.

[00:04:16] That's not good. So how do we do it correctly? First, we need to have a legitimate business purpose that we're renting our house for. That could be for retreats, that could be for board meetings. That could be for client gatherings. Maybe you're hosting a training event at your house or on the grounds of your house, whatever it might be.

[00:04:34] We need to have a legitimate business. Purpose. Now, one other thing I wanna make sure that we clarify with this is that this is after the home off seduction. So this would be over and above the home off deduction. You can still take the home off seduction and this, as long as the place that you're renting is not the home office.

[00:04:49] So if you have your home office, but when we use the August room, really we're renting the rest of the house, the kitchen, the dining room, bedrooms, all that's part of this rental typically. So first. We have a need to have a legitimate business purpose retreats, board meetings, client gatherings, training events.

[00:05:05] Second, we need to pay ourselves a fair market rental rate. So how do we do this? We find a comparable space and document what it costs to rent that space out. So we need to be paying ourself a legitimate rental. We can't just say, oh, it's $10,000 a day and move on with it. It has to be a real rate. So if you're hosting a board meeting at your house.

[00:05:24] You might go find out what does it cost to rent out a boardroom at a local hotel or a coworking space. If you're having a retreat at your home, maybe you're and it's at your whole home, maybe you're gonna find out what is an Airbnb at a house that's similar to mine in the same area, and you're gonna use that as your comparable rate.

[00:05:41] The biggest thing is find a comparable based on the event that you're having and what it would it cost to host that same exact event. Somewhere else. Find out what that comparable is, document it, screenshot, take a picture of it. If you have emails, whatever it is, document that is, and put it on file. And that's the rate you're gonna use for that rent of that, of your house to your business.

[00:06:00] The third piece we need is we need a lease or a rental agreement in place. And that's just basically gonna say, Hey, what are we renting this for? What are the days of it? What's the rate? Have that in place to help just document it and solidify it that this is a true rental piece. The next thing is you need to make a payment from your business account.

[00:06:16] To your personal account. And you wanna have all supporting documents for that. So make a bit a payment from your business account to your personal account. Now within Tax EL, we have all the supporting documents and templates for all of these different items to help you along this finding. What is a comparable rate?

[00:06:32] Finding out what the documentation that is that we need to support it, documentation for the event, all of that. Now the other thing you need to think about is that if your total. Rental payment for your house is over $600. You need to send a 10 99 to yourself, so it's gonna be a 10 99 from the business to yourself personally for the rental of your home.

[00:06:50] Now you're gonna clear out that 10 99 income on your personal tax return, you're just gonna put in other expenses IRS code, section two 80 Ag to clear it out. But we want to have that 10 99 in there if we, if it makes sense. Key things around this strategy. It must be a personal residence, and your business must be a separate legal entity.

[00:07:09] So if you're operating as a sole proprietorship, this would not work. You're operating as an S corporation. It's a great strategy for you. 

[00:07:15] Example Scenarios and Tax Benefits

[00:07:22] Speaker: Okay, so let's go through an example. 'cause I think this will help drive through, drive home this concept. And these are all strategies that I've used. Myself in some sort of capacity, but let's imagine that this is for a full year, and let's just say that you're gonna rent out your home and you have these different events.

[00:07:30] You have quarterly board meetings. You have a team retreat that's three days long, you have an education event, and then you're hosting a virtual summit. And let's figure out what this looks like from a tax aspect and what you actually need to help support that. So quarterly board meetings. I love to use this strategy for board meetings, whether it's monthly, whether it's quarterly, what's the annual board meeting, whatever it might be.

[00:07:49] I love to use this strategy for board meetings. And so what do you find out for board meetings? What do you need to find a comparable rate for that? And so let's just say a local coworking space charges $450 a day for a boardroom rental. Document it, take a picture of it and use that as your reimbursement amount.

[00:08:07] So if you have those four times a year, that's 450 times four, that's an $1,800 business expense tax free to you. Let's just say you're having a three day three day team retreat that you're hosting at your house, teams coming in, everything like that. And let's just say a comparable Airbnb down the road charges $1,200 per night.

[00:08:26] $1,200 times three is gonna be $3,600. Business expense tax free to you. If your total rental delay stays under that 14 days. Then let's say you hold a one day education event where you bring people in, you're doing education on different topics of whatever your business might be in. Again, we're gonna use a comparable Airbnb rate, $1,200 a day, $1,200 business expense, tax free to you.

[00:08:48] And then let's say you hosted a virtual summit and I actually did this once where I hosted a virtual summit where I was doing a whole day training. It was actually a two day training, but I did it outside of my home office. 'cause I wanted different backdrops. I brought some TVs I could draw and did all sorts of fun stuff.

[00:09:01] But let's just say you're host hosting a virtual summit that you wanna do at your house. And so the comparable that I found is I found out what would it cost to purchase some studio space. For a day somewhere else locally. And the one that I found was 805, 850 bucks. It was $850 per day for a comparable studio space for that.

[00:09:20] So $850 business expense, tax free income to me. So if you add all these up, it's over. All these where you have a quarterly board meeting, four days a week, four days a year, a team retreat, seven three days a year. So that's. Now we're at seven days in education event. Now we're at eight days in a virtual summit.

[00:09:37] Now we're at nine days. So even if we just had this very conservative, very reasonable numbers, at nine days it'd be over $7,000 in a business expense, tax free income to you if you're in the 37% tax bracket. That's over $2,800 in taxes Saved. Now remember, the numbers I'm using here are conservative. We're not going up to the 14 days.

[00:09:57] These are conservative numbers, and this number could be a lot higher for some, it could be lower for others. So use this as your kind of tool to determine what is reasonable in those in those opportunities. 

[00:10:10] Summary and Final Tips

[00:10:10] Speaker: Now in summary, this is a real strategy with real results, but you must do it properly. This is not simply saying, oh yeah, I rented my house 14 days or less.

[00:10:18] Here is a $20,000 check to myself and tax free income to me, no proof, no documentation. 'cause you know what? If the iris comes knocking at your door. You're gonna be like, I don't get any proof that 20,000 deduction gone. So we need to do this up. Set this up properly. If your accountant is telling you, just write a check and don't do anything for it.

[00:10:35] Go to another accountant. You want to do this correctly. I'm not saying don't do the strategy. Definitely do the strategy. It's a strategy that I do myself, but you gotta make sure you're doing it correctly. So how do we do it properly? One, we wanna document the rental reason and keep documentation for proof of that.

[00:10:50] So why, what was the event that was happening? Was it a retreat? Was it a board boardroom meeting? A board meeting, which is the one that we do a lot. It's two. You need to determine a reasonable rental rate. And have the proof of what that is. So if it's a board meeting once it costs to, to rent out a boardroom somewhere else, if it is a retreat and you're doing your whole home and or hosting an education event or something like that, what is an Airbnb for a similar house and a similar area cost.

[00:11:16] Document that proof and use that as your basis for what you're gonna make for that rental amount. Three. Execute lease agreement. Four, make the payments. Five, process the 10 99 and zero it out on your personal tax return if necessary. And finally, six, keep all that documentation on file. If the IRS comes knocking, you have this documentation.

[00:11:36] Here's my proof. Here is the, those background and support to all back that up. If you don't, the IS doesn't come knocking, you don't need it. So keep that documentation on file. You'll likely never need it, but if you do it, is there the end result from this whole concept. You get a tax deduction and it's tax free income to you super powerful.

[00:11:54] Dot your i's, cross your t's, do it the right way and get some tax free income. So there you have it. 

[00:12:00] Conclusion and Additional Resources

[00:12:00] Speaker: The Augusta rule or the 14 day home rental strategy isn't some obscure tax hack. It's a fully legal IRS authorized way to shift income from your business to you tax free. As long as you follow the rules.

[00:12:11] If you're gonna try this, do it with intention. Document the reason set fair market rental rate, execute a lease, and keep the solid records. Now, if you want help implementing this with sample lease agreements, valuation templates, and audit guardrails, visit us at taxo. That's TAX elm.com, or click the link into the description for a free discovery call.

[00:12:31] We are helping people like you lower your tax bill every single day utilizing this strategy along with so many other different strategies. And if you found this helpful. Don't forget to subscribe. Hit that like button and share it with a business owner who's sick of paying too much in debt. Thanks for visiting and I'll see you on the next one.