It’s the week of the Masters Golf Tournament, so we thought we’d share about a unique tax deduction that isn’t “par for the course” but is a completely legal way to save money on taxes. The Augusta Rule was originally created to protect residents of Augusta, Georgia, who would rent out their homes to attendees of the annual Masters Golf Tournament.
Known to the IRS as the Section 280A Deduction, the Augusta Rule allows ANY homeowner to rent their home for up to 14 days each year without reporting that income on their individual tax return.
The Augusta Rule
With the emergence of Air B&B and VRBO, more and more individuals have taken advantage of opportunities to generate income from their property. This is especially true for people who live in places where a once-a-year major event happens – such as Omaha, Nebraska for the College World Series or Augusta, Georgia for the Masters Golf Tournament. Now, people who live in these areas get an added perk of being able to rent their home for a short amount of time and not report the money they make from it.
There are only a few things you have to do to meet the Augusta Rule criteria:
- The home must be located in the United States.
- The home can’t be your primary place of business.
- You can only rent it for up to 14 days.
- The rent you charge must be reasonable and in-line with what the market supports (for instance, you can’t charge $2,000 for a night when comparable houses list for $350).
This can be a major advantage for taxpayers living in the right areas. For instance, this week in Augusta, suggested rental prices range from $1,200 for 4 nights in a 1bed/1bath condo to $25,000+ for one week in a 5 bedroom home.
The Augusta Rule for Business Owners
An added bonus with the Augusta Rule is that homeowners can rent their house to individuals looking for vacation opportunities or they can rent their house to a business owner who intends to use it for business purposes.
If you are a business owner and you do not use your home as your primary place of business, you can use the Augusta Rule to move income away from your business and shift it to personal income, where there would be no tax consequence.
- Host a monthly meeting with your Board of Directors.
- Use your home for a company retreat.
- Plan a quarterly strategic gameplan meeting with your leadership team at your home.
Under the Augusta Rule, your business will pay you to rent your house to conduct the meetings. As long as the total rental period doesn’t exceed 14 days and the rent charged is reasonable, your business is able to deduct the rent payment on the business tax return and you won’t have to report this as income on your personal taxes!
Just make sure to have documentation that shows you met the criteria for the Augusta rule and for the business deduction. For instance, you may want to print rental quotes for similar meeting locations to ensure the cost is in line and we recommend that you maintain minutes or other records of business discussions.
If you’re interested in learning more about tax or business strategy, we’d love to connect. Contact us to learn more.
Diane Anderson
Our COO and Director of Client Development, Diane is both passionate about helping clients get connected to our firm and perfecting her golf game in her free time.
