The Augusta Rule lets you rent out a home you use as a residence for up to 14 days a year and keep every dollar of that rent off your federal tax return. The provision lives in Section 280A(g) of the Internal Revenue Code, and business owners often pair it with an S corp or C corp that rents the owner’s home for meetings or retreats, producing a deductible expense for the company and tax-free income for the homeowner.1Office of the Law Revision Counsel. 26 USC 280A – Disallowance of Certain Expenses in Connection With Business Use of Home, Rental of Vacation Homes, Etc.
What the Augusta Rule Is
Section 280A(g) sets a simple trade. Rent a home you use as a residence for fewer than 15 days in a tax year, and you leave the rental income off your gross income entirely. In exchange, you cannot deduct any of the expenses tied to that rental use, such as cleaning, supplies, or preparation costs.1Office of the Law Revision Counsel. 26 USC 280A – Disallowance of Certain Expenses in Connection With Business Use of Home, Rental of Vacation Homes, Etc.
The 15-day line is a cliff, not a slope. Rent for exactly 14 days and none of the income is reportable. Rent for 15 days and the entire year’s rental income becomes taxable, with related expenses then deductible under the normal rental rules.2Internal Revenue Service. Publication 527 (2025), Residential Rental Property Nothing is prorated.
Homes and Owners That Qualify
The exclusion applies to any “dwelling unit” you use as a residence: a primary home, a vacation house, a condo, or a houseboat, as long as the space includes sleeping quarters, a bathroom, and cooking facilities. Under Section 280A(d), a property counts as a home you “use as a residence” when your personal use during the year exceeds the greater of 14 days or 10 percent of the days it is rented at a fair price.3Office of the Law Revision Counsel. 26 US Code 280A – Disallowance of Certain Expenses in Connection With Business Use of Home, Rental of Vacation Homes, Etc. A full-time home clears that bar easily. A property held out purely as a year-round rental, with no personal stays, does not.
The 14-day ceiling attaches to the property itself, not to each owner. If co-owners rent the same home to a business for seven days and to another tenant for eight, the property has used its full 14. A second owner cannot start a new 14-day count on the same dwelling.
Sole Proprietors and Single-Member LLCs Are Outside the Business Strategy
If your business is a sole proprietorship or a single-member LLC treated as a disregarded entity, you and the business are the same taxpayer. You cannot rent your home to yourself and generate a business deduction, because there is no separate party paying the rent. The strategy only works when a separately taxed entity, typically an S corporation, C corporation, or multi-member partnership, pays rent to you as an outside expense.
Setting a Defensible Rental Rate
The rate has to reflect what an unrelated tenant would pay for a similar space in your area. This matters most when the tenant is your own company, because related-party pricing draws harder IRS scrutiny.
Pull comparables before you rent. Look at short-term rental listings for similarly sized homes within five to ten miles, and check nightly rates at high-end hotels and dedicated meeting venues, since a home hosting a business retreat competes with those options. Use the same season and, if applicable, the same week: local events that push up demand support a higher daily rate for those specific dates.
Save the evidence. Screenshots or PDFs of at least three comparable listings, dated, with notes on proximity, square footage, and amenities, create the record that shows your figure came from the market rather than out of thin air.
Paperwork to Prepare Before the Rental
Documentation is what separates a clean Augusta Rule transaction from one the IRS can unwind. Every piece below should exist before the rental happens, not be assembled afterward.
Written Lease
Draft a rental agreement between the homeowner and the renting entity that names the exact dates, the daily or total rate, and the areas of the home covered. The homeowner signs, and an authorized representative of the business signs on the company’s behalf. Clear terms keep the payment from being recharacterized as a gift, a distribution, or a personal expense.
Agenda and Minutes
When the business is renting the home for a meeting or planning session, write an agenda in advance and keep minutes during the event. List real business topics: quarterly strategy, budget review, project planning, client presentations. Record attendee names and titles. That level of detail shows a genuine business purpose rather than a social gathering dressed up as a board meeting.
Invoice and Traceable Payment
Issue a formal invoice from the homeowner to the business that matches the lease figures and describes the business purpose. Pay by business check or electronic transfer so the payment can be traced, and sign and date the documents before the money moves.
The 1099-MISC When a Business Pays the Rent
A business that pays $600 or more in rent to an individual during the year must file Form 1099-MISC and report the amount in Box 1 (Rents). That obligation still applies even though the homeowner excludes the income under Section 280A(g). The recipient copy is due by January 31, and the IRS copy is due by February 28 on paper or March 31 electronically.4Internal Revenue Service. Instructions for Forms 1099-MISC and 1099-NEC (04/2025)
Receiving the 1099 does not change the tax treatment on your side. The income is still excluded. It does mean the IRS has a record of the payment, which is one more reason to keep the supporting paperwork tight.
How Each Side Reports the Transaction
The business deducts the rent as an ordinary business expense. An S corporation reports it on Form 1120-S, typically on the Rents line.5Internal Revenue Service. 2025 Instructions for Form 1120-S A C corporation uses Form 1120; a multi-member partnership uses Form 1065. The deduction lowers the entity’s taxable income.
The homeowner reports nothing. The rent does not appear on Form 1040, does not go on Schedule E, and is not “other income.” Because Section 280A(g) removes the income from gross income altogether, it also does not enter your adjusted gross income or affect AGI-based phase-outs.2Internal Revenue Service. Publication 527 (2025), Residential Rental Property The IRS treats the rental period as if it did not happen for income tax purposes, and the rental days are not counted in personal-use-versus-rental-use ratios for other home-related deductions.6Internal Revenue Service. Topic No. 415, Renting Residential and Vacation Property
Where the IRS Pushes Back
The biggest audit exposure is an inflated rental rate. When a corporation pays a shareholder more than an unrelated party would pay, the IRS can reclassify the excess as a constructive distribution rather than deductible rent.7Internal Revenue Service. Publication 542 (01/2024), Corporations In a C corporation, the reclassified amount is taxed as a dividend. In an S corporation, it reduces the shareholder’s stock basis and can become a capital gain once basis is exhausted.
Related-party transactions also face additional scrutiny under Section 267. When a shareholder owns more than 50 percent of a corporation, stricter timing rules and loss limitations apply to transactions between the shareholder and the entity.8Office of the Law Revision Counsel. 26 US Code 267 – Losses, Expenses, and Interest With Respect to Transactions Between Related Taxpayers Section 267 does not bar rent deductions between related parties, but it gives the IRS more leverage to challenge transactions that lack economic substance or arm’s-length pricing.
The way to stay out of trouble is boring and effective: keep the rate inside the range your comparables support, keep the paperwork described above, and make sure the business use is real.
What the Federal Exclusion Does Not Cover
Section 280A(g) is a federal income tax rule. It does not override state or local obligations. Many cities and counties charge lodging or occupancy taxes on short-term rentals, and those apply whether or not the income is federally exempt. Some localities also require a short-term rental permit or business license even for occasional rentals of your own home. Check the local rules before you collect rent, because fines for skipping registration or remittance can outrun the tax savings.
Most states with an income tax follow the federal treatment and exclude the rental income on the state return as well, but conformity is not automatic in every state. Verify your state’s position if you live in one that taxes income.
Homeowner’s insurance is the other blind spot. Standard policies are generally not built to cover accidents or liability tied to short-term rental activity, and insurers may deny claims connected to paying guests even without an explicit rental exclusion in the policy.9National Association of Insurance Commissioners. Renting Out Your Home? You Need Insurance Coverage for Home-Sharing Rentals Call your insurer before the first rental day and ask whether your current coverage extends to paying guests. You may need a rider or a separate short-term rental policy to close the gap.