The Augusta Rule: How Business Owners Generate Tax-Free Income by Renting Their Home to Their Company

IRC § 280A(g) — informally known as the Augusta Rule — lets S-corp and C-corp owners rent their personal residence to their own company for up to 14 days per year. The rental income is completely excluded from federal income tax. The company deducts the rent as an ordinary business expense. Done right with proper documentation, the net result is $7,000–$15,000 or more in annual federal tax savings for many business owners — with no risk to your § 121 home sale exclusion.

What is the Augusta Rule?

The nickname comes from Augusta, Georgia, where homeowners near the Masters golf tournament have long rented their houses to tournament visitors — often at significant premium rates. Congress codified this into IRC § 280A(g): if you rent your personal residence for fewer than 15 days during the year, the rental income is not includible in gross income.¹

The statute also clarifies that if you're under the 14-day threshold, your home is not treated as "rental property" at all — which means you cannot claim rental expense deductions (depreciation, insurance, utilities as rental expenses) against the excluded income. Your mortgage interest and property taxes continue to be claimed the way they always are: on Schedule A, or as personal expenses subject to normal limits. This is a feature for business owners, not a bug: the value comes entirely from the business-side deduction, not from rental expense deductions.

Who can use the Augusta Rule

The Augusta Rule is a meaningful tax strategy only for business owners who operate through a separate legal entity — an S-corp, C-corp, or a partnership/multi-member LLC. Here's why entity type matters:

If you operate as a sole proprietor or single-member LLC taxed as a disregarded entity, the Augusta Rule produces no tax savings — you'd be excluding income that was never going to be taxable anyway (because you can't deduct a payment to yourself). The strategy's value is entirely in the business deduction. The deduction only exists when there's a genuine transaction between two separate legal persons.

How it works step by step

For an S-corp owner, the mechanics are straightforward:

1. Identify a legitimate business purpose. The S-corp must hold the event at your home for a genuine business reason: an annual strategy retreat, board meeting, executive team planning session, client reception, or training event. The event must actually occur — not be a paper transaction.
2. Establish fair market rental value. Get quotes from at least two comparable commercial event venues in your area (hotel meeting rooms, event spaces, short-term venue rentals). This is the rate you'll charge your S-corp. Do not use Airbnb residential nightly rates — the IRS expects event venue comparables, not residential rental comps.
3. Sign a written rental agreement. The S-corp (as tenant) and you personally (as landlord) execute a written rental agreement specifying: the date(s), the business purpose, the rental rate, and payment terms.
4. Hold the event and document it. Create a written agenda in advance. Take attendance and capture meeting minutes. If any business decisions are made, record them.
5. S-corp pays you at market rate. The corporation writes a check or ACH to you personally for the agreed rent. This is a real cash transfer, not a paper entry.
6. You exclude the income. Under § 280A(g), you do not report the rental income on your personal return (no Schedule E, no Form 1040 line entry).
7. S-corp deducts the rent. The corporation deducts the rental payment as an ordinary business expense under § 162 — typically as a meeting, travel, or facilities expense. This reduces pass-through income on your Schedule K-1.

The tax savings math

The strategy works because you're converting S-corp pass-through income (taxed at your top marginal rate) into excluded rental income (taxed at 0%). Every dollar that flows through your K-1 as ordinary income at 37% — but instead flows through as excluded rent — saves 37 cents in federal income tax, plus self-employment tax savings are a bonus since S-corp distributions and salary adjustments affect SE exposure.

Establishing fair market value: the critical compliance point

The IRS has challenged Augusta Rule arrangements where the rental rate was not supportable as fair market value. The rate you charge must be what an arm's-length tenant would pay in the open market for a comparable space used for the same purpose.²

The right comparable is a commercial event venue — not a residential rental. If you charge your S-corp $2,000 per day but similar event spaces in your area rent for $500 per day, the IRS can reclassify the excess as a distribution or compensation. The excluded income might survive, but the excess above FMV would be scrutinized as disguised compensation or a shareholder distribution — neither of which gets favorable treatment.

How to establish and document fair market value:

• Get two or three quotes from local event venues — hotel ballrooms, event spaces, banquet halls, or short-term venue rentals. Ask for a written quote for a private full-day or half-day event booking.
• Keep the quotes on file as part of your Augusta Rule documentation package. Date-stamp them and retain them permanently (or at least 6 years from the tax year).
• Adjust for your home's features. A private chef's kitchen, outdoor space, pool, or home theater can support premium pricing vs. a hotel conference room. Unique amenities justify higher rates — but document why.
• Be conservative. It is better to leave money on the table than to invite scrutiny over an obviously inflated rate. The tax benefit at $1,500/day (14 days = $21,000) is still $7,770 in federal tax savings at 37%. Charging $5,000/day when comparable venues rent for $1,200/day creates audit risk that offsets the marginal benefit.

The 14-day cliff

This is the most important rule to understand: the 14-day limit is a cliff, not a phaseout.

If you rent your home to your business for 14 days, all 14 days of rental income is excluded. If you rent it for 15 days, all 15 days of rental income becomes taxable — your home is now treated as a rental property, § 280A(g) no longer applies, and you lose the full exclusion, not just the 15th day.

What you cannot deduct against excluded income

Because § 280A(g) prevents your home from being classified as "rental property" during the 14 days, you cannot claim rental expense deductions (depreciation, utilities, insurance prorated to rental days) against the excluded income. The statute explicitly disallows rental expense deductions when the rental income is excluded.¹

This is not a problem for S-corp owners because the benefit comes entirely from the S-corp's business deduction, not from rental loss deductions on your personal return. Your home expenses (mortgage interest, taxes) continue to flow through Schedule A as personal deductions — no change there.

Do not attempt to simultaneously claim rental expense deductions on Schedule E for the same home during the same 14-day period. If § 280A(g) applies (income excluded), you cannot claim rental expense deductions. The two treatments are mutually exclusive.

Required documentation: what to keep

The Augusta Rule is defensible in an audit — but only with a complete paper trail. Missing documentation transforms a legitimate deduction into an expensive audit battleground. Keep this package for every rental event:

1. Written rental agreement. Signed by you personally (as landlord) and by the corporation (as tenant — signed by an officer who is not you, if possible, to reinforce the arm's-length nature). Include: date(s) of rental, purpose, rental rate per day, total amount, and payment terms.
2. Fair market value comparables. Written quotes or invoices from at least two comparable commercial event venues obtained around the time of the rental. Keep these permanently.
3. Business event documentation:
   • Written agenda circulated before the event
   • Attendance list (names and titles of attendees)
   • Meeting minutes or notes documenting what was discussed and any decisions made
   • If food or catering was provided, invoices showing business-event scale (not a family dinner)
4. Proof of payment. Bank statement or cancelled check showing the S-corp paid you the exact rental amount on or near the event date. Do not back-date payments at year-end — each event should be paid within a reasonable time after it occurs.
5. Rental log. A simple running log of all Augusta Rule rental events for the year: date, hours, business purpose, rate, payment date. This prevents accidentally exceeding 14 days.

Common mistakes that create audit exposure

The IRS is aware of the Augusta Rule and scrutinizes arrangements that look abusive. These mistakes are the most common red flags:

• No genuine business event. If your "board meeting" attendee list is you and two family members who are nominally employed by the corporation, and there are no meeting minutes, the IRS can disallow the deduction as a personal expense — and reclassify the payment as a disguised distribution.
• Inflated rental rates not tied to comps. Charging $10,000/day when comparable local venues rent for $1,500/day is the most common IRS challenge point. The excess is recharacterized.
• Back-dated paperwork. Creating the rental agreement, agenda, and minutes in December for "events" held in June destroys the credibility of the whole arrangement.
• Using residential comparables instead of event venue rates. Zillow nightly rental estimates are irrelevant — the question is what a company would pay to rent a private event space for a full day. Use hotel meeting room quotes.
• Exceeding 14 days. Sometimes an owner runs a 5-day retreat plus three quarterly board meetings (3 days) plus two client events (2 days) = 10 days, and then adds a year-end strategy session (2 days) = 12 — comfortable. But then they also host a company holiday party (1 day) and training (2 days) and hit 15. The 15th day blows the exclusion on all 15 days. Track the count obsessively.
• No actual cash payment. The S-corp must actually pay the rent. A journal entry crediting you a shareholder loan while leaving the rental payment on the books as "due to shareholder" is not a completed transaction.

State tax considerations

Federal law excludes the rental income under § 280A(g). State conformity varies. Some states follow the federal exclusion; others do not recognize § 280A(g) and tax the rental income as ordinary income at the state level, reducing — but not eliminating — the net benefit.

Before implementing the Augusta Rule, confirm your state's position with a CPA or advisor familiar with your state's tax code. Even in non-conforming states, the federal savings alone (37% × rental income) often makes the strategy worthwhile. The business deduction on the state side may still apply even if the personal exclusion does not, partially offsetting the state tax hit.

The Augusta Rule and the home office deduction: using both

The Augusta Rule and the home office deduction are separate code sections and operate independently. You can use both simultaneously:

• Claim an annual home office deduction through your S-corp's accountable plan (actual expense method) for your dedicated office space — provides a year-round, pro-rata deduction based on office square footage.
• Additionally, rent the entire home (or event-appropriate spaces) to the S-corp for up to 14 specific days of business events — a separate, additional deduction tied to specific events.

The two strategies target different spaces and different time periods. The home office deduction covers the dedicated office square footage year-round; the Augusta Rule covers the whole home (or portions of it) for up to 14 specific event days. No double-counting occurs.

See our home office deduction guide for the full mechanics of the accountable plan approach for S-corp owners.

How a fee-only advisor implements the Augusta Rule

Most CPAs know this strategy exists, but implementation quality varies considerably. The advisors who get the most value from the Augusta Rule:

• Anchor the rental rate to documented commercial venue comparables — not a back-of-envelope estimate
• Set up a calendar system so clients don't accidentally exceed 14 days across multiple event types
• Draft a generic rental agreement template that gets executed for each specific event
• Coordinate payroll timing so the rental payments align with the event dates and flow through the corporate books cleanly
• Integrate the Augusta Rule into the annual tax projection alongside retirement plan contributions, QBI deduction, PTET election, and accountable plan reimbursements — the $10K–$15K federal savings is one piece of a strategy that commonly totals $40K–$100K+ in annual tax reduction for $500K+ revenue business owners

A fee-only advisor who specializes in business owners will evaluate your situation — entity structure, annual event cadence, local venue market rates, state tax position — and determine if the Augusta Rule is worth the administrative overhead for your specific circumstances.

Sources

1. IRC § 280A — Cornell Law School Legal Information Institute. Subsection (g) provides the 14-day rental exclusion: if a dwelling unit is rented for fewer than 15 days during the taxable year, (1) the unit is not treated as rental property, (2) rental expense deductions are disallowed, and (3) rental income is excluded from gross income. The exclusion applies to the owner's personal residence used as such during the year.
2. IRS Publication 527 — Residential Rental Property (2025). Covers the 14-day rule under § 280A and its interaction with personal use days. For dwellings rented fewer than 15 days, income is not reported and rental expenses are not deductible. Fair market rental value is the standard used to determine whether charges between related parties (including business entities controlled by the owner) are arm's-length.
3. IRS — S Corporations. S corporations are legal entities separate from their shareholders. Payments made by the S-corp to shareholders in their capacity as landlords (as opposed to as employees or owners) are treated as business expenses under § 162 when they are ordinary, necessary, and at arm's-length market rates. The § 280A(g) exclusion at the shareholder level and the § 162 deduction at the corporate level operate independently.
4. IRS Topic No. 415 — Renting Residential and Vacation Property. IRS guidance on the 14-day rental rule and how the threshold interacts with the personal residence and rental property classifications. Confirms that income is excluded and expenses are not deductible when rental days are below the threshold. Used to verify that the 14-day cliff is applied on a per-year basis to the total rental days, not per event.

The § 280A(g) rental exclusion is a long-standing provision of the Internal Revenue Code. Tax savings depend on your marginal rate, entity structure, local fair market rental rates, and your state's conformity to the federal exclusion. Values and examples reflect 2026 federal income tax rates. Verified May 2026.