Salvatore M. Capizzi, CEPA, CBDA, is Dunham's Chief of Sales & Marketing and a 2026 Wealthies CMO of the Year Finalist. His work focuses on retirement planning, emerging trends for financial advisors, and advanced tax, trust, and estate strategies.
The Augusta Rule is a tax rule under IRC Section 280A(g) that allows a taxpayer to rent out a dwelling unit used as a residence for fewer than 15 days during the year without including that rental income in gross income. However, rental-related expenses for those days are not deductible by the homeowner.
Key Takeaways
The Augusta Rule (IRC Section 280A(g)) lets qualifying homeowners rent their personal residence for up to 14 days a year and pay zero federal income tax on that rental income.
Business owners with an S corp, C corp, or partnership can rent their home to their company for real meetings, generating a full business deduction and tax-free personal income in the same transaction.
IRS scrutiny lands on three things: the rental rate must match local fair market comparables, every event needs a documented business purpose, and payments must actually clear the books.
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10:09
Do not judge us.
As tax nerds at Dunham, one of our Regional Directors and I were actually looking forward to a call this past weekend with a financial advisor and his client, who is selling her business.
Now, you would think that for a long holiday weekend, I could find something more exciting to do, like watch the rerun of the Thursday night New York Mets game, where they beat the Phillies. In fact, if I watch it 100 times, I can say I saw the Mets win 100 games in 2026.
The Augusta Rule was mentioned on the call, and I said it had nothing to do with her selling her business, but it got me thinking.
What the Augusta Rule Actually Says
You have successful clients with significant taxable income, and you find strategies to minimize their taxes and help them keep more of what they earn. Here, you typically recommend qualified plans, which could be an outstanding strategy.
But what if you could differentiate yourself by bringing clients tax strategies that other advisors rarely mention?
In a previous blog, I outlined an income-shifting strategy in which a business owner hires their young children, creating a tax-deductible payment to the business and a tax-free income for the child. As an added bonus, I showed you how to even avoid FICA tax.
The Augusta Rule is an additional arrow you can place in your quiver.
If you think you have exhausted every tax-saving strategy for your business-owner clients, the Augusta Rule may be a fun conversation to have with them. It is not obscure or complicated, but it tends to surprise people the first time they hear it, mostly because it sounds too good to be true.
The Augusta Rule comes straight out of IRC Section 280A(g), a provision that has been in the tax code for decades.
Why Augusta, Georgia Gave This Strategy Its Name
If you ever played golf with me, you would understand why the Augusta Rule is as close to Augusta as I will ever come.
The rule actually takes its name from Augusta, Georgia, where homeowners near Augusta National Golf Club rent their personal residences during Masters Tournament week for extraordinary sums, report none of that rental income on their tax returns, and walk away with the cash entirely tax-free.
Yes, please feel free to read that sentence again.
Congress codified this tax treatment intentionally through the 1976 Tax Reform Act, creating a rule that says if you rent your personal residence for fewer than 15 days in a calendar year, the rental income does not have to be reported as gross income, and the strategy is something business-owning clients can potentially use to their benefit.
How Business Owners Can Turn Home Meetings Into Tax-Free Rent
Let us say your client owns an S corporation, C corporation, or partnership, and that business pays your client rent to use their personal residence for a legitimate business purpose, such as a board meeting, a strategic planning retreat, a client event, or a training session.
The business deducts that rental payment as an ordinary and necessary business expense, exactly the same way it would deduct the cost of renting a hotel conference room or an event venue.
At the same time, the client receives that rental payment as a homeowner and, if the rental period is 14 days or less in the year, the client reports none of it as taxable income under Section 280A(g).
Running the Numbers: What 14 Days Can Really Save
If your client is in the 37% federal bracket with a state income tax rate of, say, 9%, and they rent their home to their S corporation for 14 days at $2,500 per day, you are looking at $35,000 flowing from the business to your client with the business taking a full deduction and your client paying zero income tax, which is a combined tax benefit that can easily approach $15,000 or more in a single year.
Compliance First: Rate, State Rules, and Audit Risk
Before your client starts calculating their tax savings, there are a few important points to mention.
The $2,500 daily rate I used in the example is only defensible if comparable commercial venues in your client’s market actually support that number, and the documentation to prove it must exist before the first rental day, not after.
Additionally, while the federal income exclusion under Section 280A(g) is clear, not every state follows the Augusta Rule, which means your client may owe state income tax on the rental.
And the business deduction, while legitimate, will draw scrutiny from the IRS if the rate looks aggressive relative to local commercial venue comparables or if the business purpose behind each rental day cannot be substantiated with meeting minutes, agendas, and attendee records. The math is real, but it only works as shown in the example when the strategy is executed correctly from the ground up under the client’s tax advisor's supervision.
Where This Strategy Fits Best for Your Clients
The most common and defensible use of the Augusta Rule is when your client already holds regular business meetings and simply wants to hold some of them at their home rather than at a commercial venue.
A client business owner who holds quarterly board or shareholder meetings, a professional practice that conducts annual strategic planning retreats, an entrepreneur who hosts client appreciation events or advisor training sessions at their property, or a partnership that gathers its principals for an annual review are all cases where the business purpose is real, and the documentation is manageable.
The strategy also works well with clients whose homes have features that make them well-suited for business meetings, such as a large kitchen and dining area suitable for client dinners, a home theater or media room that could serve as a presentation space, or outdoor grounds that work well for corporate events.
When the Augusta Rule Does Not Apply
Sole proprietors cannot use this strategy because the business and the owner are the same taxpayer. As such, the rental payment simply moves money from one pocket to the other, with no deduction and no benefit.
Clients whose businesses have no legitimate reason to gather at a personal residence cannot manufacture a purpose after the fact, and any attempt to do so creates significant audit exposure without a credible leg to stand on.
Clients who want to use the strategy for more than 14 days in a calendar year will cross the threshold that triggers full rental income reporting under regular rules, eliminating the tax exclusion entirely and potentially creating a messy reporting situation.
Documentation Potholes That Catch IRS Attention
The strategy is legitimate and well established in the tax code, but it is not without risk if it is not executed thoughtfully, and the IRS tends to focus its scrutiny on a few predictable areas.
The rental rate is the most common pothole because the IRS requires it to be reasonable and supported by comparable commercial venues in the area for similar space and use.
A client who sets the rate at $5,000 per day for a three-bedroom home in a suburban market without any documentation of comparable venue rates is inviting trouble, while a client who gathers quotes from local hotel conference rooms, event spaces, and private clubs to establish a reasonable market rate has built what could be a defensible position.
Documenting the business purpose is equally important because a rental agreement that references vague or generic business activities without specifics could give an IRS examiner exactly the opening needed to recharacterize the payments as disguised distributions or compensation rather than rent.
The things your client should consider are meeting minutes, event agendas, attendee lists, photographs, and a formal written rental agreement signed by both the business and the owner. These are the kinds of documentation that can help support the legitimacy of the events.
Why This Strategy Demands a Strong Tax Advisor at the Table
The Augusta Rule is a legitimate strategy with a strong statutory basis, but, like any tax planning technique, it must be implemented correctly.
Before your client signs a rental agreement, writes a business check, or adjusts their compensation structure in anticipation of this strategy, they need to speak with their tax advisor, who can review the specific facts and confirm that the approach is appropriate.
The strategy works when it is done right, and the difference between done right and done carelessly is almost always the quality of the professional guidance behind it.
Frequently Asked Questions About the Augusta Rule for Business Owners
Can an S corp issue a Form 1099-MISC for Augusta Rule rent payments? Yes, an S corp should issue Form 1099-MISC if it pays an individual homeowner $600 or more in annual rent. Report this total in Box 1. The homeowner excludes that income from federal taxes under Section 280A(g). Issuing this form creates a helpful audit trail that documents the corporate deduction for tax authorities.
Can business owners use the Augusta Rule if they already take a home office deduction? Yes, owners can use both rules, but the two spaces must stay separate. A home office requires regular and exclusive business use. For the Augusta Rule, your company rents common residential areas like dining rooms or patios for group meetings. You cannot charge your business rent for the exact room already claimed as an exclusive home office.
Can a sole proprietor or single-member LLC use the Augusta Rule? No, sole proprietors and single-member LLCs filing on Schedule C cannot use this rule. The IRS sees you and your business as the same taxpayer, so rent is just moving money between your own accounts. To take the rent deduction, your company must file as a separate tax entity, like an S corporation or partnership.
How do business owners establish a defensible rental rate under Section 280A(g)? You set a defensible rental price by checking local commercial rates for similar group events. Do not guess numbers or base them on your mortgage payment. Instead, get written price quotes from nearby hotel meeting rooms or event centers that host similar group sizes. Save those quotes in your files before the meeting to prove fair market value.
What documentation does the IRS require during an Augusta Rule audit? To pass an IRS audit, you need solid proof that the rental served a real business purpose. Keep a signed lease agreement between yourself and your business. Add written meeting agendas, formal corporate notes, attendee sign-in lists, and photos of the room setup. Finally, keep bank records or canceled checks showing your business paid the rent on time.
This communication is general in nature and provided for educational and informational purposes only. It should not be considered or relied upon as legal, tax or investment advice or an investment recommendation, or as a substitute for legal or tax counsel. Any investment products or services named herein are for illustrative purposes only and should not be considered an offer to buy or sell, or an investment recommendation for, any specific security, strategy or investment product or service. Always consult a qualified professional or your own independent financial professional for personalized advice or investment recommendations tailored to your specific goals, individual situation, and risk tolerance. All examples are hypothetical and are for illustrative purposes only.
Information contained in the materials included is believed to be from reliable sources, but no representations or guarantees are made as to the accuracy or completeness of information.
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