The Augusta Rule, also known as IRS Section 280A(g), lets homeowners rent out their home for 14 days or fewer in a year without reporting the rental income on their personal tax return.
At a glance:
- Rent your home 14 days or fewer per year and the rental income is generally tax-free.
- The rent charged must be reasonable (aligned with fair market value).
- The home must qualify as a residence under IRS rules.
- You cannot deduct rental expenses under this rule.
- Business-related rentals must be well documented and priced at fair market value.
What is the Augusta Rule?
Section 280A(g) allows homeowners to temporarily rent their home without reporting the rental income, as long as they rent it for 14 days or fewer. It is most commonly used two ways:
- Vacation rental: Renting out your personal residence to tourists, often useful near popular attractions or major events.
- Business events: Renting your home to your business for a meeting or planning session. If structured correctly (bona fide rental arrangement, business purpose, fair-market rent, and strong documentation), the business may deduct the rent and the homeowner may exclude it under Section 280A(g).
Rules of the Augusta Rule
- 14-day limit: You can rent your home a maximum of 14 days per tax year. Anything beyond that makes the income taxable and reportable.
- Reasonable rent: The rent must align with fair rental market price. Rent significantly higher than comparable local rentals could increase audit risk.
- Type of residence: The dwelling must be treated as a residence for the year under IRS rules, meaning your personal-use days must exceed the greater of 14 days or 10% of the fair rental days. It can be a primary residence or a vacation home.
How to report the Augusta Rule on your tax return
If you rent the home for 14 days or less, you do not report the rental income. The IRS treats this as “Used as a home but rented less than 15 days,” which excludes it from being rental property. Do not report this income on Schedule E (Form 1040) as you would for regular rental income.
You may still report other home-related expenses on Schedule A (Form 1040), such as property tax, mortgage interest, and qualified casualty loss. The Augusta Rule only exempts the rental income from tax, not the home itself.
Risks of using the Augusta Rule
The main risks are an audit or having the arrangement’s credibility questioned, usually from misuse. Watch for:
- Poor documentation. Keep clean records of rental-use days and document the business purpose and rental terms.
- Exceeding 14 days of rental. Going over disqualifies the income.
- Overcharging rent. Rent must align with local rates.
- Personal use overlap. Avoid overlap during business rental periods.
- Unclear business purposes. Keep the business purpose clearly documented.
- Deducting normal expenses. The rule does not exempt you from regular home taxes like property taxes and mortgage interest.
- Sole proprietors. Sole proprietors cannot rent to themselves, so renting your home to your own business generally requires a separate taxpayer, such as an S corporation, and strong substantiation.
Documentation needed
- Receipts
- Rental agreements
- Meeting agendas and notes
- Calendars
- Schedule of rental days
- Communications (emails and texts) between you and the renters
Is there a dollar limit?
There is technically no dollar limit, as long as you charge a reasonable rent that aligns with fair rental market value. The IRS may verify this through audits if the rent exceeds fair market value.
Who qualifies?
In general, any homeowner can use the Augusta Rule if:
- The home is treated as a residence for the year under IRS rules
- It is rented out for 14 days or fewer during the year
- It is rented at a fair rental price
If you rent your home to a related business (for example, your S corporation), the arrangement should be a bona fide rental with a clear business purpose, strong documentation, and fair-market rent, since related-party rentals can face additional scrutiny.
FAQs
Can an LLC use the Augusta Rule?
Yes, an LLC can use the Augusta Rule if it meets the conditions: renting for 14 days or less, at fair market value, and with no personal-use overlap.
What is the Augusta Rule for taxes?
It allows a homeowner to receive tax-free rental income when: the space is rented for 14 days or fewer annually; the rent is reasonable and aligns with fair rental market value; and the home is used as a residence in the tax year for personal use.
Does Section 280A(g) apply to partnerships?
Yes. Section 280A(g) can apply to partnerships, as well as other business structures such as LLCs, S corporations, and C corps.
What is the Augusta Rule for S corp owners?
It applies the same way as for other entities. An S corp can rent the home of one of its shareholders for 14 days or less at fair rental market value without the homeowner’s rental income being taxed.
Note: If your home qualifies as a residence and you rent it for 14 days or fewer in a year, you can generally keep the rental income tax-free, but you cannot claim rental expense deductions. Business-related rentals should be well documented and priced at fair market value.
This article is for informational purposes only and not legal or financial advice.