Ines Zemelman
• 12.03.24 • 5 min read
If you've been wondering whether you can rent your home to your business, the Augusta Rule could be the answer. This tax strategy offers a dual benefit: it allows you to reduce your business taxes while earning some tax-free income as a homeowner. Although the Augusta tax rule was not created for business taxation, it still applies.
In this article, we'll review the details of the Augusta Rule and explain how business owners can benefit from it.
What is the Augusta Rule?
Under the Augusta Rule, which is part of Section 280A of the Internal Revenue Code, US homeowners can rent out their property tax-free for up to 14 days per year.
The Augusta RuIe appeared thanks to community advocacy. In the 1970s, residents of Augusta, Georgia, lobbied for legislation allowing tax-free rental of their homes to Masters Golf Tournament guests. Initially a local tax relief, it now applies nationwide and provides tax benefits beyond the state of Georgia.
Who can use the Augusta RuIe?
Both businesses and individuals subject to the US tax system can take advantage of the Augusta RuIe.
The Internal Revenue Service (IRS) has no tax bracket requirements for homeowners who want to use this strategy. However, you should be aware of other limitations and requirements:
- You must own the property you intend to rent.
- The rental property must be located in the United States.
- It must be your primary, vacation, or any other personal residence.
- The total number of days you rent your property must not exceed 14 per cаlendar year.
- You must charge a fair market rental price at the time of rentаl.
note
Your state or city may have additional requirements or conditions for short-term rentals. Be sure to consult a tax professional before applying the Augusta RuIe tаx strаtegy.
How can the Augusta RuIe be used for small businesses?
Small business owners can use the Augusta RuIe to rent their homes to their businesses for meetings, conferences, or other events. As long as the business activity is ordinary and necessary, you can qualify for this tax relief.
When implemented correctly, the Augusta RuIe tax strategy allows you to increase tax-deductible business expenses and get a tax exclusion from personal income.
note
The Augusta RuIe may apply to you if your home is not your principal place of business. You do not qualify for this exemption if you already use your home for business purposes.
Your business must be structured as a corporation, an S corporation, a multi-member LLC, or a partnership to take advantage of the Augusta RuIe tax exemption.
Have a rental agreement in place to rent your home to your company. Then, your business must issue a 1099-MISC to you for the amount that was paid.
Pro tip. As a homeowner, it is important that you charge your business a fair price for short-term rentals. To know how much it might cost, contact coworking spaces, conference rooms, or country clubs in your area. If your rental price is far above the market average, you might get into trouble with the IRS.
The IRS can request that you prove your business activity during the rental period. This is why you always should have proper supporting documents:
- meeting minutes and records
- daily agendas
- attendee lists
- reports
- photos and videos
The Augusta RuIe is a complex tax strategy. Business owners should carefully consider it before renting their home for business purposes. Note that different reporting rules may apply based on the amount of rent you pay and the type of business you own.
Contact TFX tax professionals to ensure you and your small business can use the Augusta RuIe tax strategy.
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FAQ
Can you rent your home to your business as per Augusta RuIe?
Yes, you can rent your home in the US to your business as per Augusta Rule Section 280A of the tax code. The rental time should not exceed 14 calendar days. You can use this tax strategy only if your home is not your primary place of business. Before using the Augusta Rule tax strategy, consult with your tax professional.
How does the Augusta RuIe work?
The Augusta Rule is a tax provision allowing you to rent your residence in the US for up to 14 days per year tax-free. To qualify, you must own the property and charge a fair rental price, among other requirements and conditions.
Can a sole proprietor use the Augusta RuIe?
You can not use the Augusta Rule if your business is taxed as a sole proprietorship.
Can an LLC use the Augusta RuIe?
If your business is a multi-member LLC taxed as a partnership, an s corporation, or a corporation, you can potentially use the Augusta Rule. However, you cannot use the Augusta Rule if your LLC is taxed as a sole proprietorship. Before taking any steps, consult with your tax professional.
Disclaimer: This article is for informational purposes only and does not constitute legal or tax advice. Always consult with a tax professional regarding your specific case.
Ines Zemelman
Ines Zemelman, EA, is the founder and president of TFX, specializing in US corporate, international, and expatriate taxation. With over 30 years of experience, she holds a degree in accounting and an MBA in taxation. See more
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