The Augusta Rule: How Business Owners Earn Tax-Free Rental Income (Section 280A Guide)

What if your business could pay you $14,000 — or more — every year, and you'd legally owe zero federal income tax on it? That isn't a loophole pitched at a wealth seminar. It's a single sentence buried inside Section 280A(g) of the Internal Revenue Code, nicknamed the "Augusta Rule" because it was originally championed by Masters Tournament hosts who rented their homes to spectators each April.

Used correctly, the Augusta Rule is one of the most powerful tax planning moves available to small business owners. Used carelessly, it's a fast track to a Tax Court loss like the $291,000 disallowance in Sinopoli v. Commissioner. This guide walks through exactly how it works, who qualifies, how to set the rent, and the documentation auditors expect to see.

What the Augusta Rule Actually Says

Section 280A(g) of the Internal Revenue Code creates a narrow but generous exception to the ordinary rule that rental income is taxable. The statute says that if a personal residence is rented for fewer than 15 days during the tax year, the rental income is excluded from gross income — and the homeowner doesn't even have to report it.

For most homeowners, that's a curiosity. For business owners, it's an opportunity. Here's the structure that makes the strategy work:

• You personally rent your home to your business (an S corp, C corp, partnership, or LLC taxed as one of those).
• The business holds legitimate meetings or events at your home.
• The business pays you a fair-market rental fee.
• The business deducts the rent as an ordinary and necessary expense.
• You receive the rent completely tax-free — no federal income tax, no self-employment tax.

The double benefit is what makes §280A(g) extraordinary: the same dollars are deductible to the entity and nontaxable to the recipient.

Why "14 Days" Is the Number Everyone Talks About

The 14-day cap is an absolute cliff, not a sliding scale. Rent your home 14 days or fewer and every dollar is excluded. Rent it for 15 days and the entire year's rental income becomes taxable, plus you'd then have to allocate home expenses between personal and rental use — a far more complicated and far less favorable position.

A few details worth knowing:

• The 14 days don't need to be consecutive. They can be scattered across the year.
• Each day of rental use counts as one day, even if the business uses the space for only a few hours.
• Days when the property is rented to multiple tenants in a single calendar day still count as one day.

For a business that holds quarterly board meetings, monthly leadership offsites, or periodic strategic planning sessions, staying inside the 14-day window is rarely a constraint.

Who Can Use It

The Augusta Rule is most powerful for owners of pass-through entities and corporations who can cleanly separate their personal life from their business entity. The strategy works well for:

• S corporation shareholders
• C corporation owners
• Partners in a partnership
• Multi-member LLC members
• Single-member LLCs taxed as an S corp or C corp

The strategy is not available in the same form to a sole proprietor or a single-member LLC taxed as a disregarded entity. Why? Because there's no separate legal entity to "rent from" — you'd just be moving money from your left pocket to your right. The IRS treats the transaction as a wash, and the deduction disappears.

You also need to be renting your primary residence (or, in some interpretations, a second home you personally use as a residence). The rule does not apply to investment properties, pure rental properties, or homes you don't actually live in.

The Math: A Realistic Example

Consider a software consultancy structured as an S corporation. The owner holds quarterly strategy meetings at her home, plus an annual two-day planning retreat in December. That's roughly 6 days of business use per year — well under the 14-day cap.

Local hotel conference rooms in her area charge $1,500 per day for similar capacity (10 attendees, A/V, full-day catering allowance). She documents this with three written quotes from nearby Marriott and Hilton properties.

Her S corp pays her $1,500 × 6 days = $9,000 in rent across the year.

Item	Effect
Rent expense to S corp	$9,000 deduction
Rental income to owner	$0 taxable (under §280A(g))
Tax savings (assuming 32% combined federal + state)	~$2,880

If the same business held a board meeting every month at the same daily rate, the deduction would grow to $18,000, with about $5,760 in tax savings — and still well within the 14-day limit.

How to Set a Defensible Rental Rate

This is where most Augusta Rule strategies fall apart under audit. The IRS expects the rent to reflect fair market value — the price an unrelated third party would charge for the same space, in the same market, for the same purpose. Inflated rates are the single biggest red flag.

A defensible rate-setting process looks like this:

1. Identify comparable venues. Hotel conference rooms, coworking event spaces, restaurant private dining rooms, and corporate retreat centers in your zip code.
2. Match the specs. Compare rooms that fit the same number of attendees and offer similar amenities (Wi-Fi, A/V, catering, parking).
3. Get written quotes. Email three venues asking for rates on the specific dates of your meetings. Save the responses.
4. Take dated screenshots. Capture published rates from venue websites on the day of each meeting.
5. Average the comparables. Use the average of the three quotes as your daily rate. Rounding down is safer than rounding up.

The cautionary tale here is Sinopoli v. Commissioner, T.C. Memo 2023-105. The taxpayers paid themselves nearly $291,000 over three years to rent portions of their homes for monthly S-corp meetings. The Tax Court allowed only about $16,500 — roughly $500 per day, the rate it found supported by local comparables — and disallowed the rest. The lesson isn't that the strategy is risky; it's that inflated rents and thin documentation are risky.

Documentation Auditors Expect to See

If §280A(g) gets challenged, the case is won or lost on paperwork. Build a contemporaneous file for each meeting with:

• A written rental agreement between you (lessor) and the business (lessee), specifying date, duration, location, fee, and purpose.
• A meeting agenda distributed in advance.
• Meeting minutes capturing decisions, action items, and time spent on business matters.
• An attendee list with signatures or sign-in confirmations.
• An invoice from you to the business.
• Proof of payment — a check, ACH transfer, or bank record. Cash is a red flag.
• Comparable rate evidence — the quotes and screenshots collected when setting the rate.
• A 1099-MISC issued by the business to you reporting the rental income in Box 1, even though you'll then exclude it on your return.

The 1099 is counterintuitive — why report income you're going to exclude? Because the IRS computer matching system expects to see it. If the business deducted the rent but no 1099 was issued, the absence itself can flag the return. Report the income in the rental section of your Form 1040 (Schedule E) and then back it out with an offsetting entry referencing §280A(g).

Common Mistakes That Wreck the Deduction

Five patterns show up repeatedly when the Augusta Rule fails an audit:

1. No clear business purpose. A "meeting" of one shareholder talking to themselves isn't a meeting. Document multiple attendees, real agenda items, and substantive business decisions.
2. Rates that don't match local comparables. $5,000 a day for a 90-minute meeting in a tier-3 metro area won't survive scrutiny.
3. Round-trip cash. The business "pays" rent that the owner "spends" the same week on personal expenses, with no separation. Use a separate bank account and a clear paper trail.
4. Crossing 14 days. Holding a 15th day, even by accident, vaporizes the entire year's exclusion.
5. Sole proprietors trying to use it. Without a separate entity, there's no rental relationship — just self-rental that the IRS will collapse on review.

How the Augusta Rule Fits Into a Broader Tax Strategy

The Augusta Rule shouldn't be your only tax strategy, but it pairs cleanly with others. Many business owners stack it with:

• Accountable plans for reimbursing legitimate home-office and travel expenses.
• The home office deduction, which uses different rules and applies to a portion of the home dedicated exclusively to business — no overlap with §280A(g) days.
• Section 179 and bonus depreciation for equipment used at those meetings.
• Retirement plan contributions (Solo 401(k), SEP IRA, defined benefit plans) funded from business profits.

The strategies are independent. Done right, layering them produces meaningful annual savings without any single move attracting outsized audit risk.

State Tax Treatment

Most states with income taxes conform to the federal exclusion under §280A(g), meaning the rental income is excluded for state purposes too. A handful of states have selective conformity or quirky rules — California, for instance, generally follows the federal rule but has historically taken aggressive positions on related-party rental transactions. If your state's tax treatment matters to your numbers, confirm conformity with a local CPA before assuming parity.

When the Strategy Doesn't Make Sense

The Augusta Rule isn't free money. It only works if:

• You have a real business need to meet outside a normal office (or you don't have a normal office).
• Local comparable rates support a meaningful daily rent.
• You're disciplined about documentation and paperwork.
• The rental income won't push you into a higher bracket through phaseouts (rare, since the income is excluded — but worth checking with your CPA).

For a small consultancy with $80,000 in profit, $9,000 in tax-free rent is significant. For a hobby business with $5,000 in revenue, the audit risk and administrative overhead may outweigh the savings.

Setting It Up: A Practical Checklist

Before your business holds its first Augusta Rule meeting, work through this list:

• Confirm your entity type qualifies (S corp, C corp, partnership, multi-member LLC, or LLC taxed as a corporation).
• Calendar your business meetings for the year — keep the total at 14 or fewer days.
• Get three written rate quotes from local hotel conference rooms or event venues.
• Draft a standard rental agreement template you'll reuse for each meeting.
• Build agenda and minutes templates.
• Open or designate the business bank account that will pay the rent.
• Set up a recurring reminder to issue a 1099-MISC each January for the prior year's rent.
• Brief your CPA so the return is filed correctly with the §280A(g) exclusion noted.

A 30-minute setup at the start of the year saves hours of reconstruction at audit time.

Keep Your Records Audit-Ready From Day One

A tax strategy is only as defensible as the records behind it. Augusta Rule deductions live or die on contemporaneous documentation — agendas, minutes, comparable rates, invoices, and clean payment trails — and the same is true for almost every advanced tax move a small business makes.

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