Your business can pay you to rent your own home. The business deducts the rent, and you don’t pay federal income tax on it. It’s in the tax code. People call it the Augusta Rule.
It’s real, but the details matter. One group of business owners claimed about $290,000 and lost almost all of it in Tax Court. Here’s how the rule works, what it can save, and the mistakes that got them caught.
Why it’s called the Augusta Rule
Every April, the Masters golf tournament comes to Augusta, Georgia. Locals rent out their homes for the week, sometimes for thousands of dollars.
The tax code has a rule for that. It’s Section 280A(g). If you rent out a home you live in for 14 days or less in a year, you don’t report that rent as income at all. The flip side: you also can’t deduct any rental expenses for those days.
And the 14 days count every rental of that home during the year, not just to your business.
How business owners use it
Meet Sarah. She owns a marketing agency set up as an S corporation. Once a month, she holds a planning meeting with her team. Instead of renting a hotel conference room, she holds it at her house.
Her company pays her a fair rent for each meeting. Say the going rate for a comparable meeting space in her area is $1,000 a day. That’s just an example. Your number has to match your local market. Twelve meetings is $12,000.
The company deducts the $12,000 as a business expense. That lowers the profit that flows through to Sarah’s tax return. The same money is deducted once by the company and never taxed to Sarah.
Sarah doesn’t report the $12,000 as income, because it’s 12 days, under the 14-day limit. If Sarah is in the 24% bracket, that’s about $2,900 less federal income tax. In a state that follows the federal rule, it can be more. Not every state does, so check yours.
The Tax Court case that went wrong
In a 2023 Tax Court case, Sinopoli v. Commissioner, three owners — two of them doctors — owned a fitness business through an S corporation. The company paid them rent to hold meetings in their homes. It claimed three meetings a month, one at each owner’s house.
The rent was set off a per-square-foot rate for their living space, and by 2016 it reached $3,000 a month to each owner. Over three years, the company paid about $290,000 and deducted it. The owners treated it as tax-free under the 14-day rule.
The IRS looked at what local meeting space actually cost, and allowed $500 per meeting. The court called that generous. And they had no agendas, no minutes, and no calendars showing the meetings even happened. The court only accepted about one meeting a month. Out of about $290,000, the court allowed $16,500 — that’s 33 meetings at $500 each.
Two mistakes: the rent was far too high, and there was no proof. The court didn’t say the Augusta Rule itself was illegal. It said the rent had to be fair and the meetings had to be proven.
Five rules that keep it legal
One: 14 days or less a year, total. Rent the home out for 15 days or more, and the rent becomes reportable income. You can then deduct some rental expenses, but the tax-free break is gone.
Two: charge fair rental value — what a stranger would pay for a similar space. Get two or three quotes from local event spaces or hotel meeting rooms, and save them. Fair rent is based on what a comparable space costs, not on the size of your house or what you’d like to pay yourself. In that case, the IRS found large meeting rooms nearby for about $500 a day.
Three: hold a real business meeting with a real business purpose. A team planning day, a board meeting, a client event. Not a family dinner.
Four: keep proof. A rental agreement, an invoice, an agenda, minutes, and who attended. Pay from the business account to your personal account. And set it up before the meeting, not at tax time. A rental agreement signed in December for a meeting back in March won’t look convincing.
Five: the business has to be a separate taxpayer. This is mainly used by S corporations and C corporations. Partnerships can be trickier, so ask your tax pro. If you’re a sole proprietor, or a single-member LLC filing a Schedule C, paying yourself rent generally doesn’t create a deduction, because you can’t rent to yourself. The rent would just move money from one pocket of your own return to the other.
Quick recap: 14 days or less, fair rent, real meetings, a paper trail, and the right business type. Keep the rent fair and the records clean, and don’t repeat the mistakes from that case.