The Augusta Tax Rule Saves Homeowners and Business Owners Real Money
As The Masters Tournament gets underway each year, it’s fitting to highlight a tax strategy that has its origins around this prestigious tournament held annually in Augusta, Georgia. Officially spelled out in Section 280A(g) of the IRS code, let’s delve into the backstory and details of this tax rule.
Origins
- The Augusta Rule emerged in the 1970s from the golfing fervor surrounding the Masters tournament.
- Locals realized that renting out their homes during this event could be a lucrative endeavor.
- Savvy tax professionals in Georgia discovered a tax provision related to this practice.
What Is the Augusta Rule?
- The Augusta Rule allows homeowners to rent out their primary residence for up to 14 days per calendar year without reporting the rental income on their individual tax returns.
- Primary, second home, and vacation homes are eligible.
- Key points: if you rent your home for 15 days or more, all rental income becomes taxable. Tax-free income does not need to be reported. Business owners can also benefit within specific structures (S Corporation, C Corporation, or partnerships). This tax rule applies anyone around the country can use, not just property owners around Augusta.
Business Owner Use
To leverage the Augusta Rule for tax-free income, consider these steps: ensure you have a legitimate business that passes the IRS’s factor test, structure your business as an S Corporation, C Corporation, or partnership, maintain detailed records for the IRS, find rental comparables by researching local hospitality venue rates, and ensure the rental serves a genuine business purpose.
Tax-Free Benefit – By following these steps, you can generate tax-free income by renting your home to your business, shown as a meeting expense for corporations and partnerships.
The Augusta Rule provides homeowners with a unique opportunity to earn tax-free income by renting out their homes to their businesses.
In my mind, the Augusta rule is an eagle.
-Paul R. Rossi, CFA