The Augusta Rule: A Hidden Tax Strategy for S-Corp

by | Oct 13, 2025 | Uncategorized | 0 comments

What if you could rent your own home to your business and not pay taxes on that rental income?

That’s exactly what the “Augusta Rule” allows. This little-known section of the tax code (IRC §280A(g)) can be a powerful tool for business owners who operate corporations or partnerships. When implemented correctly, it lets you shift money out of your business tax-free while legitimately deducting the expense on the business side.

What Is the Augusta Rule?

The Augusta Rule (named after homeowners in Augusta, Georgia, who rented their homes tax-free during the Masters golf tournament) says:

  • A homeowner can rent out their personal residence for up to 14 days per year (the home cannot be owned by an LLC, Corporation or Non-Grantor Trusts).
  • The income received from those rentals is completely tax-free for the homeowner.
  • The payer (in this case, your business) can deduct the rent as a legitimate business expense provided it is for valid business use.

This creates a rare “double win”: tax-free income for you and a deduction for your business.

How Business Owners Use It

Let’s say you own an S-Corp. You host board meetings, strategic planning retreats, or client events at your home. Instead of holding them at a hotel or conference center, your business leases your home for the day.

Here’s how it plays out:

  • Fair Market Rent: If hotels or meeting spaces in your area charge $800 per day, you can set your rental rate at $800.
  • 14 Days Max: Rent your home to your business for up to 14 days in the year = $11,200 tax-free income.
  • Deduction: Your S-Corp deducts $11,200 as a business expense, lowering its taxable income.
  • Result: You receive $11,200 tax-free personally, while your business lowers its taxes.

Implementation Steps

  1. Document Business Purpose
    1. Hold legitimate business meetings, training sessions, or events.
    2. Keep agendas, minutes, and attendance sheets.
  2. Establish a Fair Rental Rate
    1. Research comparable local venues (hotel conference rooms, co-working spaces).
    2. Document evidence to justify the rate.
  3. Create a Rental Agreement
    1. Draft a written contract between you (as homeowner) and your business.
    2. State the terms, rate, and purpose.
  4. Pay Yourself Properly
    1. Your business should issue you a check for rent.
    2. Record the expense in the business books.
  5. Report Correctly
    1. You don’t report this income on your personal return (as long as it’s under 15 days).
    2. Your business deducts it as a rental expense.

Key Cautions

  • Limit is 14 days only—go over, and the income becomes taxable.
  • Must have a legitimate business reason—don’t just “rent” your house without proof.
  • IRS scrutiny is real—documentation and fair market value are critical.
  • Best for corporations and partnerships—not as effective for sole proprietors.

Final Takeaway

The Augusta Rule is a perfect example of how smart tax planning can legally reduce your taxes while increasing personal wealth. With proper documentation and fair rental pricing, it’s one of the cleanest ways to move money out of your business tax-free.

If you’re not leveraging this strategy yet, it may be time to talk with your CPA about putting it in place for next year.

Author: Adam C. Bell, CPA

Ready to take your business further? Let’s connect at staging-acb-logistics.devsquad.tech

Sources:

  • Internal Revenue Code §280A(g) (Augusta Rule) – Cornell Law
  • IRS Publication 527, Residential Rental Property (2023)
  • IRS Publication 535, Business Expenses (2023)

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