Also called IRS Code Section 280A, the Augusta Rule is a great tax tool for business owners that allows you to rent your home back to your business for up to 14 days in a calendar year. Essentially, that amounts to tax-free income for you as the homeowner/business owner, and your business gets to take that expense as a tax deduction.
Sounds like a dream come true, right?
If you’ve seen the plethora of Tik Tok videos, it sounds so easy to use. Why wouldn’t every business owner take advantage of it? Yes, it is a great rule, but…
There are rules to the rule.
Here are a few key parameters to know.
- You can rent your home UP TO 14 days per year for the income to be non-taxable. Over that and it all becomes taxable.
- Your business must have the right structure. If you are a sole proprietor or a single member LLC filing a Schedule C, no dice. Your business must be an S Corp, C Corp, or partnership. And, if you have an LLC, it must be taxed as one of those in order to qualify.
- There must actually be a true business purpose for the rental of the home for up to 14 days. Examples may include business meetings, masterminds, planning and strategy sessions, video or audio work.
- It must be rented for a reasonable amount. For example, if the homes in your area would typically rent for $500/night, it doesn’t make sense to charge your business $1,000/night. Make sure that what you rent your home back to your business for is within what is reasonable for your area.
- Also, if you take the deduction for the business use of a home office, you cannot use the Augusta Rule.
Great tax savings opportunity for the right business
The Augusta Rule can save businesses who are S Corps, C Corps, or partnerships a significant amount of money. Don’t leave it on the table. Talk to your tax advisor about whether your business qualifies and how to take advantage of it.
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