The Augusta Rule: A Practical, IRS-Compliant Playbook for Business Owners

What the Augusta Rule is and What It Does

The “Augusta Rule” is the informal name for Internal Revenue Code §280A(g), which creates a special result when you rent out a home you also use as a residence for a very short period. If (i) the dwelling unit is used by you as a residence during the year and (ii) it’s actually rented for less than 15 days during that year, then two things happen: the rental income is excluded from gross income, and expenses attributable to the rental use are not deductible.

In plain English: keep total rental days at 14 or fewer and the rent can be tax-free to the homeowner—while the homeowner does not take rental-use deductions for that activity. The IRS describes this as “minimal rental use”: if you rent a residence for fewer than 15 days, you generally don’t report the income and don’t deduct expenses as rental expenses.

Eligibility Fundamentals and the Day-Counting Rules

§280A applies to a “dwelling unit,” a term that’s broader than most people assume. It includes a house, apartment, condominium, mobile home, boat, or similar property, plus structures and property appurtenant to it.

The “used as a residence” requirement is technical. For §280A purposes, you’re treated as using the dwelling unit as a residence if your personal-use days exceed the greater of (a) 14 days or (b) 10% of the days rented at a fair rental.

Day-counting is strict: a day can be treated as “personal use” if the unit is used for any part of the day by you (or certain related persons), or by someone paying less than fair rental price (subject to statutory rules and exceptions).

The “cliff” matters. Once you hit 15 or more rental days, the §280A(g) exclusion no longer applies; you shift into the normal rules where rental income is included and expenses must be allocated between rental and personal use, typically reported under the vacation-home/personal-use framework. The IRS summarizes this change directly: “used as a home but rented less than 15 days” is not reported as rental activity, while “used as a home and rented 15 days or more” requires including all rental income and dividing expenses.

How Business Owners Use It and Where the IRS Focuses

A common use case is: a business rents the owner’s residence for a limited number of legitimate business days (board meetings, annual planning, leadership offsites), pays rent, and documents it as a real business expense. If the homeowner keeps total rental days at 14 or fewer, the homeowner aims to exclude that rental income under §280A(g).

The Business-Side Deduction Must Stand On Its Own

The business is generally trying to deduct rent as an “ordinary and necessary” business expense under §162, which explicitly includes “rentals or other payments” required for the use of property in which the payer has no title or equity.

This is where entity structure starts to matter operationally. If the “business” and the “owner” are effectively the same taxpayer (for example, a sole proprietorship), the §162 rental concept—payments for use of property in which the payer has no equity—often breaks down as a practical matter because the transaction does not have the same third-party character that §162(a)(3) contemplates.

Reasonableness is the Audit Fulcrum

Related-party rent invites scrutiny. The IRS is direct: a business cannot deduct unreasonable rents; when the lessor is related, rent is generally “reasonable” only if it’s the same amount you would pay a stranger for the same property.

A recent, widely cited Tax Court example is Sinopoli v. Commissioner (T.C. Memo. 2023-105), where the court reduced an S corporation’s claimed rent deductions tied to home meetings, focusing heavily on (i) documenting that the meetings occurred and (ii) whether the rent amount was reasonable for the size and nature of the use.

Documentation and Reporting Hygiene that Holds Up

The statute is short; compliance is about proving facts and supporting the business deduction.

Recordkeeping is not optional. The Code authorizes the IRS to require taxpayers to keep records and comply with rules to show tax liability, and Treasury regulations require permanent books and records sufficient to establish gross income, deductions, credits, and other items shown on returns.

An audit-ready “Augusta Rule” file typically shows four things:

1) A bona fide business purpose;  

2) a real rental arrangement;

3) a defensible rental rate; and

4) and clean payment/accounting.

In practice, that file usually includes: a short rental agreement (annual master plus event schedule works), an invoice, proof of payment from the business to the owner, and meeting substantiation (agenda, invite, attendees, minutes/notes, any handouts or decisions made). This aligns with the basic recordkeeping standard: if you claim a deduction, you need records sufficient to support it.

On information reporting, rent payments can trigger Form 1099-MISC. IRS instructions state that a business generally files Form 1099-MISC for each person to whom it paid $600 or more in rents during the year.

A Concise Implementation Playbook with an Example

Start by treating this like a real vendor relationship, not a gimmick.

Set the guardrails first: cap at 14 rental days max per calendar year and keep a conservative rental-day log (date, hours, business purpose, space used). The tax result depends on staying “less than 15 days.”

Define the meeting use clearly: specify what space is being rented and why (planning, budgeting, quarterly review, training). You want a business-purpose narrative that matches what actually happened.

Price it like the business is renting from a stranger: build support using local comparables (hotel meeting rooms, coworking conference rooms, small venue rentals). The IRS’s reasonableness framing is explicit for related-party rent.

Paper it and pay it cleanly: execute the agreement, issue an invoice that ties to the meeting date/purpose and daily rate, pay from the business account to the owner, and book it as rent/occupancy expense. Keep the transfer evidence.

Example (simple and defensible): An S corporation holds 6 documented, full-day leadership meetings at the owner’s home (6 rental days). Comparable local meeting space is $750/day, supported by quotes or screenshots. The company pays $4,500 total (6 × $750). If total rental days stay ≤14 and the home is a residence, §280A(g) can exclude the rent from the owner’s gross income—and the corporation’s deduction lives or dies on §162 facts and reasonableness.

Two pitfalls to avoid: crossing day 15 (you lose the §280A(g) exclusion) and pricing without credible market support (the IRS can disallow “unreasonable rent,” especially in related-party setups).

Interested in learning more tax strategies to lower your tax liability? Book a free consultation at: www.beaconshireadvisory.com/book