Under the Augusta Rule (Section 280A(g)), you can rent your home to your S-Corporation for up to 14 days per year and receive the rental income completely tax-free.
This legitimate tax strategy allows business owners to create additional income while generating a deduction for the corporation.
How It Works
Section 280A(g) of the tax code allows homeowners to rent their residence for up to 14 days per year without reporting the rental income. When your S-Corporation holds legitimate business meetings or events at your home, it can pay you fair market rent.
The result:
- You receive tax-free rental income (up to 14 days)
- Your corporation gets a business expense deduction
- The net effect reduces overall tax burden
Requirements for Compliance
To withstand IRS scrutiny, you must meet these requirements:
Have Legitimate Business Purpose
The rental must be for actual business activities:
- Board meetings
- Strategic planning sessions
- Employee training
- Client meetings
- Company retreats
Charge Fair Market Rent
The rental rate must be reasonable. Research comparable venues in your area:
- Hotel conference room rates
- Executive meeting space rentals
- Event venue pricing
Document how you determined the rate.
Maintain Proper Documentation
Keep records of:
- Meeting dates and duration
- Business purpose of each meeting
- Attendees
- Meeting agendas and minutes
- Rental agreements
- Payment records
Follow Corporate Formalities
The corporation should:
- Have a written rental agreement
- Issue payment by check (create paper trail)
- Document the arrangement in board minutes
Example Scenario
Your S-Corporation holds monthly board meetings at your home (12 meetings per year). Local executive meeting space rents for $500 per day.
- Annual rent: 12 days x $500 = $6,000
- Corporation deducts $6,000 as business expense
- You receive $6,000 tax-free (under 14-day limit)
If your effective tax rate is 30%, you've saved $1,800 in taxes.
Common Mistakes to Avoid
- Exceeding 14 Days: Once you pass 14 days, ALL rental income becomes taxable
- Inflated Rent: Unreasonable rates invite IRS challenge
- Poor Documentation: Without records, the deduction may be disallowed
- No Business Purpose: Personal use disguised as business use is tax fraud
Is This Right for You?
This strategy works best for S-Corporation owners who:
- Regularly hold business meetings
- Have adequate space at home for meetings
- Are willing to maintain proper documentation
- Want to maximize legitimate tax deductions
The Bottom Line
The Augusta Rule provides a legitimate way to shift income from taxable to tax-free while creating a business deduction. Like all tax strategies, proper execution and documentation are essential.
Consult with your CPA before implementing to ensure compliance with current tax law.
