How the Augusta Rule Lets You Earn Tax-Free Rental Income

How the Augusta Rule Lets You Earn Tax-Free Rental Income

The Augusta Rule, officially known as IRS Section 280A(g), is a lesser-known provision in the U.S. tax code that allows homeowners to rent out their personal residence for up to 14 days per year and not report the income on their federal tax return.

That means the rental income you earn, if you follow the rules, is entirely tax-free.

This strategy became popular thanks to residents of Augusta, Georgia, who rented out their homes during the annual Masters Golf Tournament.

But you don’t need to live near a golf course to benefit. If you own a home, especially as a high-income professional or small business owner, this can be a powerful tool in your tax-saving strategy.

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How the 14-Day Limit Works

You can rent out your home, a second home, or even a vacation property for up to 14 days per calendar year and not claim any of that income.

This applies only if the home is used as a personal residence and not classified as a full-time rental property.

What Counts as a Rental Day?

Those 14 rental days don’t have to be consecutive. You could rent your house for a corporate retreat, a holiday rental, or even for a big event in your area like a music festival or local sports tournament.

As long as it doesn’t exceed 14 days in total, you’re in the clear.

What Counts as Fair Market Rent?

To qualify for the Augusta Rule, the amount you charge must reflect the fair market value. You can’t overcharge or undercharge, especially if you’re renting to a friend or your own business.

The IRS expects you to use data from comparable homes in your area.

Determining the Right Price

A great way to establish fair market rent is to research short-term rental listings in your neighborhood or use pricing tools on vacation rental websites.

You can also ask a local property manager or real estate agent what similar homes are renting for during peak seasons.


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Who Can Use the Augusta Rule?

This rule is ideal for people who own a primary residence or vacation home in the United States. It’s especially helpful if you live near places with major events, seasonal tourism, or corporate business activity.

But you don’t have to rent to tourists—you can rent to your own business.

Using the Rule for Your Business

If you operate a business or are the owner of an S corporation, sole proprietorship, or single-member LLC, you can rent your home to your business for events like meetings, training days, or retreats. This converts personal space into a legitimate business expense—and the income is still tax-free to you.

Important: You must have proper documentation. That includes a written rental agreement, payment receipts, and proof that the rental rate matches the fair rental value for the location and season.

Why the Augusta Rule Works So Well

This strategy is appealing because it allows you to convert personal space into income without raising your tax bill. Under most situations, rental income must be reported and taxed, and rental expenses are deducted.

But under the Augusta Rule, the income is excluded, and you can still deduct the rent your business pays as a legitimate business expense.

It’s a perfect tool for small business owners, real estate investors, and high-income earners looking for every legal way to lower their tax burden.

Plus, it doesn’t require changing your primary investment strategy or making a big real estate purchase. You’re simply using a personal asset—your home—in a smarter way.

How to Document the Rental

Proper documentation is critical. If the IRS audits you, you’ll need to prove that:

  • Your home qualifies as a personal residence.

  • The rental period did not exceed 14 days.

  • You received fair rental value.

  • A formal agreement was in place.

  • Payments were made and recorded.

What to Keep on File

Keep thorough records, including emails, invoices, bank transfers, and photos if needed. If you’re renting your house to your business, keep minutes from any meetings or planning sessions that justify the need for the rental.

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What You Can’t Deduct

Here’s the tradeoff: because the income isn’t reported, you can’t deduct any rental-related expenses. That includes cleaning fees, utilities, or mortgage interest during those days. You’re getting the benefit of tax-free income, so you lose the right to deduct related expenses. That’s fair in most cases because the tax-free status more than offsets those minor costs.

Risks of Misusing the Augusta Rule

The biggest risk is going over the 14-day limit or failing to charge a reasonable rental price. If you rent the home for more than 14 days—even just one extra—the entire income becomes taxable, and you have to report it on Schedule E of your tax return. That changes the game significantly and introduces other reporting requirements.

Avoiding IRS Red Flags

Also, if you rent your home to your business for inflated rates or without proper paperwork, the IRS may deny the deduction and classify the income as taxable. That could lead to interest and penalties.

Make sure the transaction looks and operates like a real rental. That includes using a business bank account, tracking client funds, and avoiding commingling personal and business expenses.

Real Estate and the Augusta Rule

This rule isn’t about buying a rental property or managing tenants long-term. It’s about using a personal residence or vacation home in a smart, limited way to earn income.

Complementing Real Estate Investing

Still, the strategy aligns well with the broader tax benefits of real estate. If you already invest in rental properties or real estate syndications, the Augusta Rule is another tool in your tax planning toolbox.

It can even create a tax-free cash cushion that helps cover property taxes, insurance, or mortgage interest on other investment properties.

When combined with other tax strategies like depreciation, bonus depreciation, and Section 179, the Augusta Rule can help offset taxable income in different ways, even though it doesn’t directly reduce your business’s profits.

How to Include It in Your Tax Plan

Meet with a financial advisor or tax professional who understands the tax code, including Section 280A. Not all CPAs are familiar with the Augusta Rule or how to apply it.

Make sure your advisor has experience with real estate investors, small business owners, or high-income earners.

Planning Ahead for Maximum Benefit

Use this rule as part of your annual tax planning. Look ahead at your calendar and decide which events, retreats, or meetings could be held at your home. Then assign a reasonable rental rate and build documentation in advance.

Summary: A Legal, Simple Way to Lower Taxes

The Augusta Rule is a rare gem in the tax code—easy to apply, highly beneficial, and totally legal when used correctly. You can earn up to 14 days of tax-free rental income simply by renting out your home at fair market value and keeping detailed records.

Whether you’re a small business owner, real estate investor, or high-income W-2 earner, this provision lets you turn your home into a tax-saving machine—without dealing with tenants or a second mortgage.

Used correctly, it becomes part of a well-rounded strategy to keep more of your money working for you, not the IRS.

Final Tip: Always get expert guidance and legal advice to tailor the strategy to your specific situation. No tax tool works in isolation, but the Augusta Rule can absolutely complement your existing tax strategies if you plan ahead and document carefully.

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