The Augusta Rule: Renting Your Home to Your Business

The Augusta rule is a nickname for Section 280A(g) of the Internal Revenue Code. It says that if you rent a dwelling unit that you also use as a residence for fewer than fifteen days during the year, the rental income is not included in your gross income, and rental expenses are not deductible. The nickname comes from homeowners near a famous golf tournament who rent their homes for a short period each year. Business owners have adapted the idea by renting their homes to their own businesses for meetings or events.

How the Strategy Is Described

In the business version, the owner's business rents the owner's home for a legitimate business purpose, such as a board meeting, a planning retreat, or a training event, for up to fourteen days in the year. The business pays a market rental rate, deducts the payment as a business expense if it is ordinary and necessary, and the owner excludes the rental income from personal income. If the requirements are met, the business receives a deduction while the owner receives tax-free income.

Requirements That Matter

Several elements need to be true:

• A genuine business purpose. The event must be a real business activity, not a personal gathering relabeled as a meeting.
• Fair market rental rate. The rent should be what a comparable venue would charge, supported by quotes or comparable rates for similar spaces in your area.
• Fewer than fifteen days. The rental days must total fourteen or fewer for the year.
• The property qualifies as a dwelling unit used as a residence. The home is your residence, and you use it for personal purposes as well.
• Proper entity relationships. The renting business must be a separate taxpayer from the individual for the arrangement to make sense. A sole proprietor renting to themselves is not a rental between separate parties, so the strategy generally applies to owners of corporations, S corporations, or partnerships.

Documentation

Documentation is the heart of the strategy. Recommended records include a written rental agreement, minutes or an agenda for each meeting, attendee lists, invoices or payment records, and comparison quotes for local venues supporting the rate. Payment should be made from the business to the owner, and the business should record it consistently. Photos or notes showing how the space was set up can help.

Common Risks

The arrangement has attracted scrutiny when the rates appear inflated, when the meetings look like they were held only to generate deductions, or when the same owner uses the home for both personal and business purposes without clear separation. Courts have considered cases where taxpayers claimed the exclusion and the deductions were denied for lack of substantiation or business purpose.

State tax treatment may differ from federal, and other rules may apply if the space is used for business more often than the fourteen days.

How It Differs from a Home Office Deduction

The home office deduction concerns regular and exclusive use of part of the home. The Augusta rule involves a short-term rental of the home to a business. They are different provisions with different requirements, and using both raises questions about overlap. It is important not to double count the same space and time. See Home Office Deduction for Business Owners.

A Hypothetical Illustration

Suppose a corporation holds two quarterly planning sessions at an owner's home, using a dedicated conference space for full days. The corporation obtains quotes from nearby venues for similar space, signs a rental agreement at a rate supported by those quotes, keeps agendas and attendee lists, and pays the rent from the business account. The owner excludes the rent from personal income under the rule. This example is hypothetical and does not imply that any arrangement will qualify.

Coordinating with Payroll and Reporting

The payment to the owner is not wages and is not reported on Form W-2. It is generally recorded as rent expense at the business level. Some advisors recommend that the business issue no Form 1099 for the rental if it is not required, while others prefer to document the arrangement carefully. Confirm requirements for your situation.

Questions to Ask

1. Does my entity structure allow this arrangement?
2. What rate is supported by local venue comparisons?
3. What business events are truly held at my home?
4. How will we document each event?
5. Are there state-level differences?

See Commonly Missed Business Deductions to Review for other items to review and Audit Readiness for Owner-Operators for documentation practices.

Questions Examiners Tend to Ask

If an arrangement is reviewed, expect questions such as: What was the business purpose of each event? Who attended? Why was the home used rather than a rented venue? How was the rate determined? Was the payment made and recorded on time? Being able to answer these questions from your file, without relying on memory, is what makes the arrangement defensible. If you cannot answer them comfortably, reconsider whether the arrangement fits your business.

State Considerations

Some states do not conform to the federal exclusion or treat rental income differently. Check state treatment before relying on the strategy, and confirm that any local rental or lodging rules do not apply to short business rentals of your home.

Educational purposes only. This page is general education and is not tax, legal, or accounting advice. Tax laws change and outcomes depend on individual facts, so consult a qualified professional before acting. No result is guaranteed.