If someone told you that the IRS lets you rent out your home for tax-free income without jumping through a bunch of hoops, you’d probably raise an eyebrow.
But it’s true. There’s a legit tax strategy called the Augusta Rule, and it can be a win for small business owners like you.
Here at Virjee Consulting, we work year-round to help small business owners take advantage of strategic and legal tax loopholes. This is one of them.
So let’s walk through the Augusta Rule explained, how it actually works, and how you can use it to reduce your tax bill by renting your home to your business.
What is the Augusta Rule?
The Augusta Rule comes from a part of the tax code called Section 280A(g). It allows homeowners to rent out their personal residence for up to 14 days per year without having to report that rental income on their personal tax return.
In other words, you can receive rental income and not pay a penny of tax on it, as long as you stay within the rules.
The name “Augusta Rule” comes from Augusta, Georgia. Homeowners there famously rent out their homes for a premium during the Masters golf tournament. They get to pocket that income completely tax-free if it’s for 14 days or less.
But here’s the thing: this rule doesn’t only apply to golf fans or people with vacation homes.
If you’re a small business owner, you can use this strategy with your own home and your own business.
How small business owners are using this rule
Let’s say you own an LLC or an S Corporation. If your business holds a meeting or a company retreat or even a planning session, and you host it at your home, your business can pay you a fair rental rate for the use of your space.
That rental payment becomes a deductible expense for the business. On the flip side, you personally get the money without having to include it as income on your tax return, as long as you don’t exceed the 14-day limit for the year.
That’s where the real value comes in. Your business lowers its taxable income. You receive money in your pocket. And the IRS isn’t asking for a cut of it.
It’s a clean strategy that works well when it’s done right.
But is it really that simple?
It’s a solid strategy, but you still have to follow a few important steps to stay within the law.
First, the meeting or event must be legitimate. That means you actually need to have a real business purpose. If you hold a team offsite, a client workshop, or a shareholder meeting, make sure to have documentation that shows what the meeting was for and when it happened. Create an agenda. Take meeting notes. Print out a calendar invite. This helps prove that the rental was for a valid business reason.
Second, the rate you charge your business needs to be based on fair market value. You can’t make up a number. You need to do a little research to find out what a comparable space would cost to rent for a day. That might mean looking at hotels, conference rooms, coworking spaces, or event venues near you.
If you live in Houston, we can help you set a reasonable rate that makes sense for your area.
Third, always create a paper trail. You want to invoice your business from you personally. The business should pay that invoice by check or bank transfer and record it as a rental expense. That way, there’s a clean record of the transaction on both sides.
And finally, you need to be sure your home is not already being claimed as your regular place of business. If you already deduct a home office, you can’t double-dip and use the Augusta Rule for your daily work use. It has to be used for something separate and occasional, like a quarterly planning meeting or a team dinner.
What does fair market rent actually mean?
This is where many people get stuck. Fair market rent is what someone else would reasonably pay to rent your home for a day for the same purpose.
You don’t have to undercharge, but you do want to be realistic.
If you’re renting out your dining room for a full-day board meeting with a catered lunch, you might look up what a local coworking space would charge for a private room with seating, food, and amenities. You could also compare to hotel conference rooms, especially if you’re offering similar features like parking, seating, and audio-visual setups.
The key is to have documentation. If the IRS ever asked how you arrived at your rate, you want to show your research. Take screenshots. Save quotes. If your home setup is nicer than the local alternatives, it’s okay to price accordingly, but it needs to be reasonable and backed up.
How much could this actually save you?
Let’s say your business pays you $1,000 for each day you rent your home for a planning session. If you do that ten times during the year, that’s $10,000 your business can deduct, and $10,000 you personally receive tax-free.
If you’re in a 30% combined federal and state tax bracket, that could mean $3,000 in tax savings just from using your home in a smart, strategic way.
And the best part?
You’re not bending the rules. You’re following them exactly how they were written.
Should every small business owner use this?
Not necessarily. If you never host anything at your home or if you already use your home for daily business operations and claim a home office deduction, this may not be the right fit.
But if you occasionally hold meetings, strategy days, or even trainings at your house, this rule can be a real money-saver. You just have to use it carefully and document everything.
Need help setting it up?
This is exactly the kind of thing we help our clients do.
At Virjee Consulting, we believe in finding smart, legal ways to reduce your tax burden and help your business keep more of what it earns.
If you’re wondering whether the Augusta Rule makes sense for you, or if you want help setting the right rental rate and getting your documentation in place, we’re here to help.
Reach out to us here and let’s talk through whether this is a fit for your business.
Until next time.
