A Tax Loophole Every Business Owner Should Know
You may have heard about the Augusta Rule recently—it has gained popularity on social media as a legitimate tax loophole that allows homeowners to earn tax-free rental income.
This IRS-approved strategy permits taxpayers to rent out their home for up to 14 days per year without reporting rental income. If used correctly, business owners can leverage this tax loophole to create a deductible business expense while receiving tax-free income.
What Is the Augusta Rule?
The Augusta Rule falls under IRC Section 280A(g) and allows homeowners to rent out their property for 14 days or fewer per year without paying taxes on that income.
Originally created for homeowners in Augusta, Georgia, who rented their homes during The Masters Tournament, this tax loophole now benefits homeowners and business owners across the country—especially those near high-demand events like the Super Bowl, music festivals, or major conferences.
Who Can Benefit from This Tax Loophole?
- Homeowners renting out their home during major events can earn tax-free income.
- Business owners (excluding sole proprietors) can rent their home to their business for events like board meetings, training sessions, or corporate retreats, resulting in a business tax deduction and tax-free rental income.
How the Augusta Rule Works
To take advantage of this tax loophole, you must follow these IRS rules:
- Stay within the 14-day limit. Renting your home for even one extra day makes all rental income taxable.
- Sole proprietors cannot use this loophole. Since a sole proprietorship is not a separate legal entity, renting from yourself is not allowed.
- Charge fair market rent. The rental rate must be reasonable. Compare rates with Airbnb, VRBO, or local hotels to determine fair pricing.
- Keep proper documentation. The IRS requires proof of:
- Rental dates
- Business purpose (meeting minutes, event details, etc.)
- Market-based rental rate calculations
How Business Owners Can Use the Augusta Rule
If structured correctly, business owners can rent their home to their company for up to 14 non-consecutive days per year for:
- Board of Directors meetings
- Employee appreciation events or holiday parties
- Employee training sessions
- Client dinners or executive retreats
This strategy allows business owners to create a deductible business expense while receiving tax-free rental income, making it a highly effective tax loophole when executed properly.
Common Mistakes That Could Invalidate This Tax Loophole
- Lack of documentation. Always keep records of rental dates, fair market rental value, and meeting or event details.
- Inflated rental rates. The IRS may flag excessive rental charges, so base pricing on actual market rates.
- Exceeding the 14-day limit. The 14-day rule applies at the individual level, not the business level, meaning you cannot have multiple businesses renting your home for 14 days each.
Is the Augusta Rule a Game-Changer for Tax Savings?
While this tax loophole will not result in massive tax savings, it is an easy and legal way to reduce your taxable income. Every tax break counts, and when combined with other strategies, it can contribute to overall tax efficiency.
Take Advantage of This Tax Loophole Before Year-End
At Aligned CPA, we help business owners implement strategies like the Augusta Rule the right way—ensuring compliance while maximizing tax deductions.
Joy Lutz, CPA, CTP
I help our client’s keep more money in their pockets by implementing proactive tax strategies.
I promise you, working with a CPA and Certified Tax Planner can be much more exciting than crunching numbers and reviewing last year’s taxes.