Planning your tax returns and deductions isn't just for year-end. If you can make strategic decisions early and keep accurate, well-documented records, you can potentially benefit from thousands in tax savings. One often-overlooked opportunity? The Augusta Rule.
When applied correctly, this rule allows business owners to earn tax-free income. It’s low-effort, high-reward and fully supported by the IRS - when done right.
What Is the Augusta Rule?
The Augusta Rule is named after Augusta, Georgia, where homeowners rent out their properties during the Masters Tournament. It allows you to rent out your personal residence for up to 14 days per year without paying federal income tax on the income it creates. The rule applies to any taxpayer nationwide who owns a primary or secondary residence and rents it out for 14 days or fewer per year.
How It Works: IRS Guidelines and Requirements
To take advantage of the Augusta Rule, you can rent your primary or secondary home (not a rental property). However, it must be used personally for at least 14 days or more than 10 per cent of the total rental days. Rental use has to be 14 days or fewer, and you have to charge the fair market rent, making sure you clearly document the use and purpose. If you exceed 14 rental days, all of your rental income becomes taxable, and the rule no longer applies.
McSwain Hiott Adds $15K+ in Value
As an example, at McSwain Hiott, we helped a client effectively use the Augusta Rule to make more than $15,000. Our client rented their home at a standard $825 a day, a fair market price. They rented it to their business for 14 days, earning a tax-free income of $11,550. This, added to their estimated tax savings of $3,465, equals a total of $15,015. In compliance with IRS rules, thanks to McSwain Hiott, the company deducted the $11,550 as a legitimate business expense. The homeowner then received that amount tax-free.
To help you understand the Augusta Rule a little better and how to apply it to business, here’s a step-by-step breakdown. First of all, you need to establish a fair market rental rate. Use real, local comps to justify your daily rental amount. It should reflect what a third-party rental, event space or venue would charge for a similar business use.
Secondly, you’ll need to create a lease agreement. Formalizing the arrangement with a written rental agreement between you and your business entity – specifying dates, purpose, rate and terms - is vital.
Thirdly, you need to document the business use. Keep official records showing your home was used for legitimate business purposes with things such as board meeting minutes, agendas and attendee lists.
And finally, make sure you limit your use to 14 days. If you exceed the limit by even one day, then the Augusta Rule doesn’t apply, and your entire tax-free benefit is disqualified.
How to Stay IRS-Compliant with the Augusta Rule
The Augusta Rule is IRS-approved, but without proper documentation, the IRS may deny your deduction and reclassify it as taxable. As mentioned already, if you have missing or vague lease agreements, don’t keep meeting minutes or use a property you don’t personally live in, then you run the risk of voiding your claim.
Why It’s Worth It
For many business owners, the Augusta Rule is a low-effort, high-reward tax opportunity. When executed properly, you earn tax-free income, your business gets a fully deductible expense. And, when supported by a firm like McSwain & Hiott, you can be confident the approach is both effective and compliant.
"Mac & Steve run a very organized operation. They do an exemplary job of providing tax assistance and guidance while still working within the constraints of your unique business. They are very personable and down-to-earth, trustworthy, and knowledgeable with great character.” Jamie & Allison Nadeau, Ink Meets Paper
Plan Ahead, The Right Way
If you’re a business owner and you meet the criteria, the Augusta Rule may be one of the simplest ways to lower your tax bill and pay yourself tax-free. But like all IRS strategies, it needs to be structured and documented the right way. Our team walks clients through every step, from rate justification to audit-proof recordkeeping.
Schedule a Free Tax Strategy Call
Want to know how to use the Augusta Rule could work for you? Book a free tax advisory call today. We’ll help assess your eligibility, run the numbers, and build a plan that works.