The Augusta Rule: How to Collect 14 Days of Rent and Pay ZERO Tax on It.

Disclaimer: this article isn't about equity comp. But....it is a tax strategy many of my clients are using to save thousands in taxes. I've had that conversation enough times now, and clients are really happy when we do, that it seemed worthy of an article focusing on it :). So lets dive in.

What we are talking about today is called the Augusta Rule

• It's real, and it isn't a loophole. It's a statute — Internal Revenue Code § 280A(g), on the books since 1976. You are not exploiting an oversight.

• It is also not a home run. For most people this is worth $k to $5k in tax savings a year. Not life-changing, but worth doing (especially if it already slots into, or easy to slot into, your life plans)

Here's How It Works/What the Rule Specifies

The statutory language is short, and it's worth reading the real thing rather than a summary of it:

If a dwelling unit is used during the taxable year by the taxpayer as a residence and such dwelling unit is actually rented for less than 15 days during the taxable year— no deduction is allowed for that rental use, and the income "shall not be included in the gross income of such taxpayer."

In Plan English: You can rent your home for up to 14 days in a calendar year and the rent you collect from doing so is tax free (excluded from federal gross income entirely).

And yes -- the nickname comes from the golf Masters tournament in Augusta, Georgia. Residents there frequently rent their houses to attendees and in 1976 they successfully lobbied Congress not to be taxed on it. The provision applies nationwide, to anyone.

Four things determine whether you qualify:

1. The property has to be a residence you use. Your primary home clears this automatically. A vacation home typically also qualifies if your personal use exceeds the greater of 14 days or 10% of the days it's rented at market rate. A pure rental property does not qualify.

2. 14 days is the ceiling, per home, per year. The statute says "less than 15," so 14 is your maximum.

3. Day 15 is a cliff, not a phase-out. Rent for 15 days and you don't lose one day of benefit — you lose

   all of it. Every dollar becomes taxable and you shift into the normal rental reporting rules.

4. Partial days count as full days. A two-hour meeting on a Tuesday burns a full day off your 14.

Now, the two ways people actually use this in practice

Use Case 1: Rent Your House to Strangers

This is the original version, and it's available to everyone reading this — W-2 employee, business owner, retiree, doesn't matter.

You're going on vacation for ten days. Your city is hosting a marathon, a conference, a big game, a festival. You list the house for rent. Someone agrees and rents/stays there. You collect the $8,000 in rent tax free.

The mechanics are simple, but a few things are easy to get wrong:

• You ALSO get no deductions against the income. Cleaning, platform fees, supplies for those days — none of it is deductible. That's the trade-off written into the statute. In practice, on a 14-day rental at a good rate, giving up the deductions to exclude the income is a trade you'll take every time.

• Your mortgage interest and property taxes are unaffected. Those stay on Schedule A exactly as they would have. The rental doesn't disturb them.

• Federal ≠ state and local. Most states conform to the federal treatment, so the income is generally excluded there too. Local occupancy and lodging taxes are a separate system and frequently still apply. So do short-term rental ordinances, HOA rules, and your homeowners policy — which very likely does not cover paying guests without a rider.

Honestly, this version is straightforward. The one that generates the "how did I not know that" reaction is the second one below.

Use Case 2: Rent Your House to Your Own Business

If your business is a separate taxpayer from you — an S-corp, a C-corp, a partnership, a multi-member LLC — then that business can pay you rent to use your home for legitimate business purposes. Board meetings. Quarterly planning sessions. An annual offsite. Client or team events with real business substance. And when it does:

• The business is able to deduct the rent it paid to you as an ordinary and necessary business expense

• You individually get to exclude the income from renting your house to your business under the Augusta Rule because you rented for 14 days or fewer.

Two different code sections, two different taxpayers, and the money lands in the middle untaxed. The deduction is real on one side and the income disappears on the other.

One gotcha: a sole proprietor or single-member LLC generally cannot do this. You'd be renting from yourself. Same taxpayer, no deduction. If you run a consulting practice as a sole proprietor and you want to use this, the conversation to have with your CPA is about entity structure first, not about the Augusta Rule.

What it's actually worth

Let's put real numbers on it, because the ranges you see quoted online are usually optimistic.

Say you own an S-corp. You hold four quarterly planning sessions, four board meetings, and a two-day annual offsite at your home — 10 rental days. You must charge normal market rates, so you pull quotes from comparable local meeting and event venues and they support $1,200 per day.

• Rent paid: $1,200 per day * 10 days = $12,000

• Business deduction: $12,000, which flows through and reduces your taxable income

• Income to you: $12,000, excluded

At a 37% marginal rate, that deduction is worth about $4,440 federally. Add more on top of that if your state conforms to federal rules and also allows the deduction.

Doing It Right: The Documentation Standard

I'm sure you will be SHOCKED to learn that some people try to abuse the Augusta rule. The two most common ones are (1) Claiming meetings/events that never occurred, and (2) Heavily over-charging on the rent rate vs. market.

If you're going to do this, my reco (like nearly all things) is to ensure you do it right. This is not complicated, but its pretty easy and best practice to ensure this works out as you expect it to.

1. Establish the rate with real market data/comps. Pull quotes from local hotels, event spaces, AirBnB housing rental rates, etc.

2. Sign a written rental agreement before each rental date, specifying the date, the space being rented, the purpose, and the rate.

3. Document the business substance. An agenda, an attendee list, minutes or notes, and decisions that came out of it. If the only evidence a meeting happened is a line item in your books, it didn't happen per the IRS examiner (even if you did have the meeting)

4. Keep a single dated log across all rental days, including any days you rented to third parties. Both use cases draw from the same 14. Airbnb your house for seven days during a big event and you have seven left for the business.

5. Pay it properly. Business account to personal account, on or near the date, with a clean paper trail. Not a year-end lump sum reclassified as rent.

This communication is for informational and educational purposes only and is not intended as tax, accounting, legal or investment advice, nor as an offer or solicitation of an offer to buy or sell any security. Your specific circumstances are unique, and thus your tax situation and treatment will also be unique. The examples above are illustrative only and use simplified assumptions; actual results will vary based on your entity structure, income, state of residence, and other factors. Tax law and reporting thresholds change, and the application of Internal Revenue Code § 280A(g) is highly fact-dependent. This communication should not be relied upon as the sole factor in making any tax or financial decision. You should consult your CPA, tax advisor, or attorney regarding your particular situation before taking any action.