The Augusta Rule: A Step-by-Step Implementation Guide

IRC Sec. 280A(g) is one of the shortest and most useful provisions available to a business owner. If a dwelling unit is used as a residence and is rented for fewer than 15 days during the year, no rental income is included in gross income and no rental deductions are allowed.

Read that in the context of an owner and their own business, and the structure appears: your business rents your home for legitimate business purposes, deducts the rent under IRC Sec. 162, and you exclude the income entirely. Nothing appears on your Schedule E. Nothing is taxed.

Done properly at a defensible rate, this moves $10,000 to $20,000 per year out of business income tax-free. Done casually, it is one of the easier items for an examiner to disallow. The difference is entirely in execution.

Step 1: Confirm the Structure Works

Two threshold checks.

The business must be a separate taxpayer from you. An S-Corp, C-Corp, or multi-member LLC taxed as a partnership works, because the entity pays rent to a different person. A sole proprietorship or single-member LLC taxed as a disregarded entity does not, because you would be paying rent to yourself and the transaction has no tax effect.

The dwelling must be used as a residence. Your primary home qualifies. A vacation home you use personally can qualify. A property held purely as a rental does not, because Sec. 280A applies to dwelling units used as a residence.

See the S-Corp tax optimization guide.

Step 2: Establish a Defensible Rate

This is where most implementations fail, and it is the easiest part to get right.

The rent must be reasonable, meaning what an unrelated party would pay for comparable space. The way to establish that is to go get quotes.

Contact three to five local venues that could host the same meeting: hotel meeting rooms, conference centers, private event spaces, restaurant private rooms, or coworking meeting facilities. Ask for written quotes for a full-day rental for your group size, including what is included, such as tables, seating, wifi, parking, and any catering minimums.

Save the quotes as PDFs or emails. Refresh them annually, since rates change and stale support looks like no support.

Then set your rate at or slightly below the range those quotes establish. If comparable venues run $900 to $1,600 per day, a rate of $1,200 is well supported. A rate of $3,500 is not, and an unsupported rate is the fastest way to lose the deduction plus have the excess treated as a distribution or compensation.

Some practitioners add a modest premium for a residential setting with amenities a hotel would not provide. That can be reasonable, but it should be small and explainable, not the basis of the number.

Step 3: Have a Real Business Purpose

The rent must be an ordinary and necessary business expense under IRC Sec. 162. That means the meeting has to be a real meeting.

Purposes that hold up:

• Annual board or shareholder meeting
• Quarterly strategic planning sessions
• Annual budget and forecast review
• Team offsites or planning retreats
• Client or partner meetings requiring privacy
• Training sessions and workshops
• Compensation and benefits review

What does not hold up is a family dinner recharacterized as a meeting, or fourteen identical "strategy sessions" with no agenda, no attendees, and no output.

A useful discipline: each meeting should produce something. Minutes, a written plan, a budget, a decision memo. If there is no artifact, the meeting is hard to distinguish from a day at home.

Step 4: Document Before, During, and After

The file for each rental day should contain five items.

A rental agreement between you individually and the business, executed before the meeting, specifying the date, the space rented, the rate, and the purpose. One agreement covering the year's scheduled dates works, or one per meeting.

A corporate resolution or minutes authorizing the rental arrangement and the rate, adopted before the first meeting.

An agenda prepared in advance, listing topics and attendees.

Meeting minutes or notes recording what was discussed and decided, with attendees and start and end times.

Evidence of payment from the business account to your personal account, on or near the meeting date. A check or transfer with a memo line referencing the date. Not a single December lump sum for the whole year, which reads as a year-end tax maneuver rather than a rental.

Photographs of the meeting are inexpensive and surprisingly persuasive.

Step 5: Count the Days Carefully

Fourteen is a hard ceiling. Rent for 15 days or more and Sec. 280A(g) does not apply at all: the entire year's rental income becomes taxable, and you are into the vacation home allocation rules.

Keep a simple calendar of rental dates. If you own multiple properties, the 14-day limit applies per dwelling unit, so a second home can host its own meetings under its own 14-day allowance, with its own rate substantiation.

Note the corresponding rule: because the income is excluded, you get no deductions attributable to the rental. That is the trade, and it is a good one.

What It Is Worth

An S-Corp owner holding 12 meetings at $1,250 per day deducts $15,000 at the entity level. That reduces K-1 income by $15,000, and the owner excludes the $15,000 entirely.

At a 40% combined marginal rate, that is $6,000 of tax saved annually from a set of documents and a recurring calendar entry. Over ten years, $60,000.

For a C-Corp the mechanics are the same, with the deduction reducing income taxed at 21%. See the C-Corp tax strategy guide.

The Mistakes That Cost People the Deduction

No rate support. A number chosen because it produced a round annual figure. Get the quotes.

No meetings. Paying rent for days on which nothing happened.

One December payment. A single lump-sum transfer at year-end for twelve meetings held throughout the year undermines the premise that these were real rentals.

Wrong entity. A sole proprietor paying rent to themselves. No effect.

Fifteen days. Losing the entire exclusion by one day.

Issuing a 1099 to yourself and then omitting the income. If the business issues a Form 1099-MISC for the rent, the IRS matching system expects to see it reported. The common approach where a 1099 has been issued is to report the rent on Schedule E with an offsetting entry and an explanatory statement referencing Sec. 280A(g), rather than simply omitting it. Coordinate this with whoever prepares the return.

Where It Fits

The Augusta Rule is not a large strategy on its own. It is one item in a stack that also includes an accountable plan, correct reasonable compensation, retirement plan funding, and, where real estate is involved, cost segregation. Each is modest. Together they are the difference between an unoptimized return and an optimized one.

It is also among the cheapest to implement: a template agreement, a calendar, and an hour of quote gathering each year. See the Augusta Rule for business owners, accountable plan setup, and how to get under a 20% effective rate.

Frequently Asked Questions

How does the Augusta Rule work?

IRC Sec. 280A(g) provides that if a dwelling unit used as a residence is rented for fewer than 15 days during the year, the rental income is excluded from gross income and no rental deductions are allowed. When your business rents your home for legitimate business meetings, the business deducts the rent under IRC Sec. 162 and you exclude the income entirely.

Can a sole proprietor use the Augusta Rule?

No. The business must be a separate taxpayer from you, which means an S corporation, C corporation, or multi-member LLC taxed as a partnership. A sole proprietorship or single-member LLC treated as a disregarded entity would be paying rent to itself, which has no tax effect.

How do I determine a defensible daily rate?

Obtain written quotes from three to five comparable local venues, hotel meeting rooms, conference centers, private event spaces, or restaurant private rooms, for a full-day rental for your group size. Set your rate at or slightly below the range those quotes establish, and refresh the quotes annually. An unsupported rate is the most common reason the deduction is reduced or disallowed.

What documentation do I need for each meeting?

Five items: a rental agreement between you and the business executed in advance, a corporate resolution authorizing the arrangement and rate, an agenda prepared beforehand, minutes or notes recording what was discussed and decided with attendees and times, and evidence of payment from the business account near the meeting date rather than a single year-end lump sum.

What happens if I rent for 15 days instead of 14?

The exclusion is lost entirely. IRC Sec. 280A(g) applies only when the dwelling is rented for fewer than 15 days, so at 15 days the full year's rental income becomes taxable and the vacation home allocation rules come into play. The 14-day limit applies per dwelling unit, so a second home has its own separate allowance.

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