You can rent your home for 14 days or less, including renting to your corporation, and may be able to claim a deduction for rents paid by your corporation while not recognizing the income on your personal return.

Learn if you can use the “Augusta Rule”, and what’s required to qualify.

What is the Augusta Rule?

The Augusta Rule (code section 280A) is named after the golf championship in Augusta, Georgia. The intent was to supplement the hotels in the area due to the large influx of people for the tournament. But the use of the Augusta rule has expanded beyond supporting a sporting event.

Under this rule, if you rent out your home for 14 days or less per year, the money made from rent is not reportable on your personal tax return, and the company can deduct the rent payment as a business expense.

This is good for the home owner and the business’s finances:

• Business Gain: Your business can deduct the rent paid, lowering its taxable income.
• Personal Gain: The money you make is 100% tax-free and doesn’t need to be reported.

Is the Augusta Rule Only for Medical Practices?

While the “Augusta Rule” is largely used in the medical industry, it isn’t limited to it. You can also use the Augusta Rule if you are a:

• S-Corp
• C-Corp
• Partnership

Businesses that can not utilize this tax strategy are:

• Sole Proprietors*
• Single-member LLCs*

*Because Sole Proprietors and Single-member LLCs file under Schedule C, the IRS views them as the same entity. For this reason, they are not able to rent to themselves. However, they can utilize the August Rule if renting to a 3rd party.

Common Uses for the 14-Day Rental

1. Business meetings with officers and owners
2. Crew activities
3. Client meetings

Note: The documented use should be legitimate and the facility should be used as stated.

Due Diligence

There are due diligence items and special considerations to follow when using the Augusta Rule:

1. Rent should be reasonable for the area.
   • Print your findings for due diligence.
2. Have a contract drafted between you and your corporation stipulating the rent to be paid.
3. Formalize the rent with checks or other official payments from the corporation to you.
4. Draft minutes of the use of the rental time.

Home Rental Deductions: Since you will not recognize the income, you can’t recognize any additional expenses for renting the home for these 14-days.

Why This Matters

If you are a medical practice/business owner, using the Augusta Rule can increase both your business deductions and your amount of tax-free income.

Interested in optimizing your business and personal finances? Contact us today so we can create a customized tax strategy.

Resources

https://www.law.cornell.edu/uscode/text/26/280A

https://www.irs.gov/publications/p527

https://www.law.cornell.edu/uscode/text/26/162