Most small business owners have never heard of IRC §280A(g), and their tax bills are higher because of it. The provision, informally called the Augusta Rule, after the Augusta, Georgia, homeowners who have long rented their properties during the Masters Tournament, allows a homeowner to rent their primary residence to their own business for up to 14 days per year and excludes every dollar of that rental income from their personal taxable income.
The business, meanwhile, deducts the full payment as an ordinary and necessary expense. The combination is one of the few genuine double-sided tax benefits available in the code.
For a small business owner charging a market-rate fee for hosting legitimate company events in her home, the strategy can produce $20,000 to $30,000 of completely tax-free personal income annually. Done correctly, it is entirely legal. However, if done sloppily, it invites audit scrutiny that the documentation will not survive.
How the Math Actually Works
The rental rate must reflect what a comparable commercial venue would charge for the same space and event type. A nice home used for a full-day executive offsite, training session, or a board meeting could realistically command $1,500 to $2,500 per day based on local hotel conference room and event space rates in the same market.
At $1,500 per day across 14 days, the total rental income is $21,000, excluded entirely from the owner’s gross income under §280A(g). Now, at $2,000 per day across 14 days, the exclusion climbs to $28,000.
The business deducts that same amount as a meeting or event space rental under IRC §162. For a business owner in the 37% combined federal and state bracket, the personal income exclusion alone on a $21,000 payment is worth roughly $7,770 in avoided personal taxes.
The business deduction on the same payment, assuming a pass-through S-corporation, reduces taxable income flowing to the owner’s return, adding to the effective benefit. The double-sided tax arbitrage makes this one of the highest-return planning strategies available to business owners who qualify.
The Business Structure Requirement That Trips People Up
The strategy requires the business to be a separate legal entity for tax purposes, specifically an S-corporation, C-corporation, or a multi-member LLC or single-member LLC that has made an S-corporation election.
It does not work for a sole proprietorship or a single-member LLC treated as a disregarded entity, because there is no separate taxpaying entity to generate the deductible rental expense. The IRS views a disregarded entity as the same taxpayer as the owner, making the payment circular rather than a genuine arm’s-length transaction between two parties.
A business owner who operates as a sole proprietorship and attempts this strategy is not actually paying rent to a separate entity. She is paying herself, and the IRS correctly treats that as a non-event for tax purposes.
Converting the business to an S-corporation election is a prerequisite for making the Augusta Rule available, and for many small business owners, that conversion produces additional tax benefits beyond this strategy.
Documentation Is the Strategy
The IRS scrutinizes August Rule arrangements because they are genuinely easy to abuse and because the tax benefit is substantial. The documentation standard required to defend the deduction is specific and must be contemporaneous, meaning created at the time of the events rather than reconstructed after the fact.
The business needs a written rental agreement signed before the event, specifying the dates, the rental rate, and the purpose of the use. The rental rate must be supported by written comparables, typically printed quotes or invoices from local hotels, conference centers, or event spaces showing what similar space rents for in the same market.
Corporate minutes or meeting records should document that the event took place, who attended, and what business was conducted. Payment should flow from the business bank account to the owner’s personal account on the rental agreement schedule, not in a lump sum at year-end.
The business purpose must be genuine: strategy sessions, board meetings, sales training days, and team planning off-sites all qualify if they actually occur. Staged or nominal meetings where no real business is conducted do not qualify and expose both the business deduction and the income exclusion to disallowance, as well as potential penalties for negligence or fraud. The strategy is worth pursuing precisely because it is legitimate when structured correctly, and teh documentation burden is the price of that legitimacy.
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