The Augusta Rule: How to Substantiate Your Tax-Free Rental Income (and Keep the IRS Happy)
If you’re a homeowner or a business owner looking to maximize your tax savings, the Augusta Rule is a golden opportunity. This often-overlooked tax provision allows you to rent your home for up to 14 days a year—completely tax-free. But before you start celebrating, let’s talk about how to substantiate your claim and stay on the IRS's good side.
In this post, we’ll break down the Augusta Rule, how to document everything properly, and how to avoid common pitfalls. Plus, we’ll sprinkle in some humor, because taxes don’t have to be boring!
What Is the Augusta Rule?
The Augusta Rule, officially known as IRC Section 280A(g), originated in Augusta, Georgia, during The Masters golf tournament. Locals rented their homes to golf fans and made a tidy profit. Congress decided to let them (and now, you) keep that income tax-free—provided the home is rented for 14 days or fewer per year.
Today, the rule isn’t just for golf aficionados. Homeowners nationwide can use it, especially if they own a business and rent their home for legitimate business purposes.
How to Substantiate the Augusta Rule with the IRS
The Augusta Rule is a fantastic tax-saving strategy, but the IRS expects you to prove your claim. Here’s how to substantiate it like a pro:
1. Create a Written Rental Agreement
A formal rental agreement between you (the homeowner) and your business is essential. Include:
The purpose of the rental (e.g., "Quarterly planning session").
Rental dates and duration.
The agreed-upon rental rate (make it reasonable!).
Having a written agreement shows the IRS you mean business—and no, writing “Because I felt like it” on a napkin doesn’t count.
2. Charge a Reasonable Market Rate
To satisfy the IRS, the rent you charge your business must align with what similar venues in your area cost. Research local rates for conference rooms, event spaces, or similar facilities. Save proof, such as online listings or quotes, to substantiate your pricing.
Example: If a local event space rents for $400/day, charging $5,000 for your living room because “it has great vibes” won’t pass muster.
3. Document the Event (Think IRS Scrapbook)
The IRS loves documentation. Keep detailed records of the rental, including:
Meeting agendas or minutes.
Photos of the setup (hide the Legos and laundry piles!).
Attendee lists (even if it’s just you and your laptop).
This paperwork shows that your rental was legitimate and business-related—not just an excuse to watch Netflix on a weekday.
4. Keep Payments Clean and Separate
Ensure your business pays rent to you (personally) via a formal transfer from the business account to your personal account. Label the transaction clearly, like "Office Rental for Marketing Meeting."
Why it matters: If payments are messy, the IRS might suspect you’re mixing personal and business expenses—something they don’t take lightly.
5. Stick to the 14-Day Limit
This is non-negotiable. If you rent your home for 15 days or more, the IRS considers all rental income taxable. Keep a strict count on your rental days and mark them on your calendar to avoid accidentally crossing the line.
Real-Life Examples of the Augusta Rule in Action
The “Donut-Fueled Strategy Session”
Your business holds a team meeting in your living room to plan for the next quarter. You provide coffee, a whiteboard, and donuts. The event is documented with photos, an agenda, and payment records. The business pays you $500 (the local rate for similar venues). Tax-free income and happy employees—what’s not to love?
The “Backyard Training Day”
You rent your backyard for a one-day employee training session. You bring in folding chairs, a projector, and some snacks. Save photos, the event agenda, and a copy of the payment from your business. Bonus: the snacks are deductible as a business expense!
The “Solo Entrepreneur Retreat”
Even if you’re a sole proprietor, you can rent your home to your business for a one-day strategy retreat. Document your time brainstorming on tax laws (or Googling “How to win at taxes”). Snap a picture of your laptop at the dining table with a notebook. Although this strategy works best with an invited, unrelated guest. If you’re a realtor, invite a loan officer you work with regularly. IRS-approved tax planning in action!
Why Proper Documentation Matters
The Augusta Rule can save you thousands in taxes, but only if you follow the rules. If the IRS questions your claim, having a well-documented paper trail will keep you out of trouble. Here’s what to keep on file:
A written rental agreement.
Market rate research for your rental price.
Event records, including agendas, photos, and attendee lists.
Payment records showing clean, separate transactions.
Final Tips for Substantiating the Augusta Rule
Be Consistent: The more organized your records, the easier it is to defend your claim.
Avoid Overcharging: Market rates are key—don’t get greedy.
Use the Rule Strategically: Save it for high-value business events to maximize your tax savings.
How We Can Help
At Day Tax Advisors, we specialize in helping homeowners and business owners make the most of tax strategies like the Augusta Rule. We’ll help you create airtight documentation, calculate fair rental rates, and maximize your savings—without raising any red flags with the IRS.