The Augusta Rule, also known as the Masters exception, is a nickname for Section 280A(g) of the Internal Revenue Service Code. This section allows homeowners in any income bracket to exclude up to 14 days of rental income from their taxable income. If you have a business, this means that you could rent your home to your business for up to 14 days, receive a tax deduction for the business and not pay taxes for this rental income.
At first I had your curiosity, now I have your attention - how does it work?
- To qualify for the tax exemption, you must be renting out a unit that you use as a personal residence. This means that renting out a house, apartment, condo, mobile home, boat or similar property may qualify for the exclusion as long as you use that dwelling unit as a residence.
- The Augusta Rule IRS exemption applies to the owner’s/renter's primary homes, secondary homes and vacation homes.
- Expenses related to the rental of these properties are not deductible.
- The 14-day restriction is cumulative and does not need to be consecutive. For example, if you would like to hold multiple board meetings or company events at your home throughout the year, you may rent your home to your business and still qualify as long as you do not surpass the 14 day limit.
- The rental price must be reasonable for that location on that date. For example, if you live in Manhattan, New York, the typical rental price might be $200/night on most days of the year and $300/night during holidays such as Christmas or St. Patrick's Day. As long as your rent prices are comparable to the market, it should qualify for the exemption.
How do you report this rental income?
- Remember this is a tax exemption, you don't! :-) That being said, be sure to keep records of the rentals in the event you are ever questioned.
General closing thoughts
Generally speaking, anyone who owns a business can benefit from the Augusta Rule. Before putting your house on the market, please be sure to check with local regulations as local authorities might have restrictions on short term rentals. Lastly - be strategic and plan your rentals during market highs for your local area.
As a reminder, this post is for informational purposes only and should not be taken as tax or legal advice. Every agency is different. To find out if it's beneficial or not for you to take advantage of the Augusta Rule, please speak to your tax accountant or book a tax planning call with us if you're already a tax client.