To use the Augusta Rule, rent your personal residence to a business entity that files its own tax return, keep the total rental to 14 days or fewer in the year, charge a rate supported by local comparable venues, and document every meeting. Do that, and Section 280A(g) of the Internal Revenue Code lets you exclude the rental income from your federal gross income while the business deducts the payment as an ordinary expense. The strategy is legal, but it only works when the paperwork, the pricing, and the entity structure all line up.
Who Can Actually Use This
The rule requires two separate taxpayers: the person who owns the home and the business that pays the rent. That single requirement disqualifies most solo operators before they start.
If you file a Schedule C, you and your business are the same taxpayer for income tax purposes. Rent you pay to yourself has no tax effect. Single-member LLCs taxed as disregarded entities have the same problem, because the IRS treats the LLC and its owner as one and the same.
The structures that work are the ones that file their own returns:
- S corporations, which are the most common vehicle for this strategy. The S corp deducts the rent on Form 1120-S and the shareholder-owner excludes the income under 280A(g).
- C corporations, which use the same mechanics on Form 1120, though the corporate rate and double-taxation exposure make them less common among small-business owners.
- Partnerships and multi-member LLCs, which can pay rent to a partner’s residence on Form 1065. Related-party dynamics make clean documentation and arm’s-length pricing especially important here.
If you’re a sole proprietor today, you’d need to restructure before this strategy is available to you. That’s a decision with consequences well beyond one tax provision, so don’t let the Augusta Rule alone drive it.
The 14-Day Limit
The statute requires the dwelling to be “actually rented for less than 15 days during the taxable year.” Fourteen days is the ceiling. No grace period, no proration. Rent it for a 15th day and the entire exclusion collapses; every dollar of rental income becomes taxable under the normal rules of Section 61.
A rental day is a rental day regardless of hours. A four-hour board meeting uses one of your 14 days as fully as an all-day retreat. The statute is silent on setup and teardown, so the conservative approach is to count any day the space is reserved for and used by the business.
If you also rent the home through a platform like Airbnb, those days count against the same 14-day cap. Every rental day from every source pools together.
Setting a Rental Price That Holds Up
Fair market value is the most litigated piece of this strategy. The IRS defines a fair rental price as what an unrelated person would pay for comparable space, and when the parties share ownership, the burden is on you to prove the number is reasonable.
Gather current pricing from local venues that could realistically host a similar event: hotels with meeting rooms, conference centers, co-working spaces with rooms big enough for your group. Collect three to five written quotes or dated screenshots from around the time of your planned meeting. Match the comparables to your space by purpose, approximate size, condition, and location. Your rate should land inside the range those comparables establish. Going above the top of the range is the fastest way to invite a challenge.
In Sinopoli v. Commissioner, a 2023 Tax Court case, shareholders relied on a rental rate supplied by a tax-planning firm rather than doing their own market research. The IRS ran its own comparable analysis, concluded local meeting space rented for roughly $500 per day, and the court largely sided with the IRS. Do your own homework and keep the receipts.
Documenting Each Meeting
Documentation exists to prove to an auditor that a real business meeting happened at your home and the company paid a reasonable price for the space. Build a file for every event. Each file should contain:
- Meeting minutes from the board or managing members approving the decision to hold a specific event at the residence, showing date, business reason, and who voted.
- A brief written business purpose. Strategic planning, quarterly review, employee training, shareholder meeting. Vague labels like “general business discussion” invite skepticism.
- An agenda prepared before the meeting and a list of who actually attended. In Sinopoli, taxpayers couldn’t produce credible evidence the meetings even took place, and that failure was devastating to their case.
- The comparable-rate research (quotes or screenshots) dated near the event.
- An invoice from you to the business listing the event date, property address, business purpose, and rental amount. One invoice per event.
The comparable-rate research and the agenda are where people cut corners. Everything else is paperwork. Those two items are what proves the transaction was real.
Paying and Booking the Rent
The business must pay you through a traceable method. A business check or electronic transfer from the company account to your personal account creates the clearest trail. Cash is nearly impossible to substantiate in an audit.
Record the payment on the company’s books as a rental or meeting expense, referencing the invoice number and date. The expense has to qualify as ordinary and necessary under Section 162, meaning it’s the sort of cost a reasonable business in your industry would incur for a genuine business purpose.
Timing depends on your accounting method. Cash-basis companies, which covers most small businesses, deduct in the year the payment is actually made. If the meeting is in December but the check clears in January, the deduction lands in the next tax year. Accrual-basis companies deduct when the expense is incurred, regardless of when the money moves.
Reporting on Both Returns
The Business Side
The company deducts the rental payment as an ordinary business expense on its return: Form 1120-S for S corps, Form 1120 for C corps, Form 1065 for partnerships. If total rent paid to you during the year reaches $600 or more, the business must also file Form 1099-MISC reporting the payments in Box 1 (Rents). That filing obligation stands regardless of how you treat the income personally. The 1099 reports what was paid; it doesn’t decide how the recipient treats it.
Your Personal Side
Because the rental stayed under 15 days, you exclude the income under Section 280A(g). You don’t put it on Schedule E and you owe no federal income tax on it. If the business filed a 1099-MISC, the IRS has a record of the payment on file, so keep your documentation organized in case a matching notice arrives.
Watch state treatment separately. Not every state conforms to every provision of the Internal Revenue Code, and some may tax this rental income even though the federal government doesn’t. Check your state’s conformity rules or ask your preparer before assuming the income is tax-free at both levels.
The Home Office Overlap
If you claim a home office deduction, you generally can’t also use that same space for the Augusta Rule exclusion. The home office deduction under Section 280A(c) requires exclusive and regular business use of a defined area, which conflicts with the premise that the property is a personal residence being temporarily rented. If your home office is a separate room, you can still rent a different area, like a dining room or living room, for meetings. Just make sure the rented space and the office space don’t overlap.
What Gets the Deduction Thrown Out
The IRS approaches related-party rentals with skepticism, and the margin for error is narrow. The common failure patterns, drawn from cases like Sinopoli and IRS enforcement history:
- Inflated rental rates. Charging $2,000 a day when comparable venues charge $500 signals a disguised distribution. The IRS will recharacterize the excess as a constructive dividend for C corp shareholders or a distribution for S corp shareholders, which carries worse tax consequences than ordinary rental income.
- No evidence the meeting happened. Without an agenda, an attendee list, or a tangible outcome, the IRS will argue the rental was a fiction. Minutes drafted after an audit notice arrives carry almost no weight.
- Family members attending without business roles. A spouse or child at a “board meeting” who isn’t a shareholder, director, or employee undermines the business-purpose argument.
- A generic rate from a tax-planning firm. The Sinopoli court specifically criticized shareholders who adopted a firm-supplied rate without independently verifying it against local market data.
When the IRS wins a challenge, both sides pay. The business loses the deduction, the payment can be reclassified as a dividend or as compensation, and if it’s treated as wages, the company may owe unpaid payroll taxes on top of everything else.
How Long to Keep the Records
The IRS generally requires records supporting items on a return for three years after filing. If you fail to report income exceeding 25% of the gross income shown on your return, the retention period extends to six years. Augusta Rule income never appears on your return at all, so six years is the safer floor. The business should keep the same records for the same period, since the deduction does appear on its return.
Store the comparable-rate research, invoices, meeting minutes, agendas, and bank statements together in one file per tax year. Digital copies are fine if they’re legible and backed up. The point isn’t just surviving an audit; it’s being able to respond quickly and completely if a matching notice arrives because a 1099-MISC doesn’t line up with income reported on your personal return.