Augusta Rule (Section 280A(g) in combination with Sections 162, 274, etc.)

Allows a homeowner to rent his personal residence to his business for up to 14 days per calendar year. The rental payment is deductible to the business and excluded from the homeowner’s personal income. Example: I rent my home to my business for $2,000 (I made that number up). My business gets a $2,000 tax deduction. But I do not pay tax on the $2,000 I received as rent. Details & moving parts are involved.

Residence

A dwelling unit (i.e., has a kitchen, sleeping area, and bathroom) such as a home, condo, apartment, vacation residence, used by the taxpayer for personal purposes during the year. It cannot be used primarily for business or long-term rental. A taxpayer may have multiple residences.

14-Day Rule

To qualify, the property must be rented out for 14 or fewer days in a calendar year. Renting it for 15 or more days makes the residence ineligible for the Augusta Rule.

Fair Market Value (FMV) Rental Rate

The rental rate must reflect what a business would reasonably pay to rent a similar property in the area. FMV must be justifiable and supported by contemporaneous documentation such as local venue quotes or comparable short-term rental listings. The IRS focuses heavily on this number and wins audits when taxpayers cannot justify their FMV rental rate with solid, contemporaneous documentation.

Ordinary and Necessary Business Purpose

The rental must be for a valid business-related purpose, such as a board meeting, team strategy session, or training event. The business purpose and the event itself must be backed up by solid & contemporaneous documentation. The IRS focuses heavily on the quality of the business purpose as well as the documentation of that bona-fide business purpose.

Business Entity Paying Rent

The rent must be timely paid by a legitimate, separate business entity (C-corp, S-Corp, etc.), and not by the individual taxpayer personally. Payment should come from a business account.

Documented Rental Agreement

A written agreement should outline the dates of use, business purpose, rental amount, and attendees. The agreement should be followed in practice. This is essential for audit protection.

Tax Reporting Required for the Business and the Homeowner

The business may deduct the rental as a business expense. The homeowner properly reports the income on his Schedule E, Form 1040 (IRS/Skynet sometimes flags unreported rental income). He also reports a tax deduction that 100% offsets the reported income.

Audit Readiness

Maintaining properly prepared meeting agendas, attendee lists, payment receipts, and FMV justification documents ensures compliance and protects against audit issues.

Minimum Attendees

While no hard IRS rule exists, having 3+ persons (preferably non-family, owner+spouse count as 1) attend supports the legitimacy of the meeting.

Documenting Attendees

Keep names, roles, and business relevance of all attendees. Use sign-in sheets, meeting minutes, or photos as evidence. The content of the meeting and why what content mattered to the business should also be well-documented.

Entertainment Restrictions

Entertainment expenses (concerts, parties, etc.) are generally not deductible. Hosting a party with incidental business discussion does not qualify as a legitimate business event. Entertainment usually kills the Augusta Rule.

Meals at Business Events

Non-extravagant meals during a legitimate business meeting are usually 50% (sometimes 100% deductible). The meals should be separately paid for by the business and not bundled into rent by the homeowner.

Purpose-Driven Agendas

Prepare an agenda showing times, discussion topics, and goals to demonstrate the business intent behind the rental. The meetings need to be serious, real, and documented. The IRS will disallow deductions for meetings that are fluff or not well documented.

Avoiding Mixed Personal Use

Renting the home for business during “coincidental” personal events (birthdays, Thanksgiving) constitutes poor optics and is more likely to result in the loss of the tax benefit.

Payment Documentation Tips

Payments should come from the business account, match the agreement, and be recorded on the business’s books as a rental expense. Mere bookkeeping entries in lieu of payment, paying it all once in a lump sum, or other irregular practices should be avoided.