The Augusta Rule: How Homeowners & Investors Can Earn Tax-Free Rental Income
If you own a home in the United States — whether it’s your primary residence, vacation home, or part of your investment portfolio — there’s a powerful tax strategy that lets you earn tax-free rental income every year. Known as the Augusta Rule, this IRS-approved provision allows homeowners and business owners to rent out their homes without paying federal income tax — if done correctly. TaxZero
What Is the Augusta Rule (IRS Section 280A)?
The Augusta Rule refers to Internal Revenue Code Section 280A(g), a tax provision that allows homeowners to rent their personal residence for up to 14 days per year and exclude that rental income from federal taxable income.
Named after Augusta, Georgia, where locals historically rented their homes during the Masters Golf Tournament, this rule applies to homeowners nationwide — not just in Augusta.
Key points:
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You can rent your home up to 14 days per year and pay $0 federal income tax on that rental income. TaxZero
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The rule applies to primary residences, secondary homes, and vacation homes.
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The days don’t have to be consecutive.
Why Homeowners & Investors Should Care
For many homeowners and real estate investors, the Augusta Rule offers a rare opportunity for tax-free income — without turning your property into a full-time rental business.
Benefits include:
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Earn tax-free rental income up to 14 days a year.
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Use your home for business purposes (like meetings or retreats) and have your business pay rent at fair market value. Brotman Law
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Your business can deduct the rental expense, lowering its taxable income.
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Works with both personal and business use under IRS guidelines.
This makes the Augusta Rule especially valuable for real estate investors, S-Corp owners, LLCs, C-Corps, and partnerships with cash flow to manage and tax planning goals to reach.
How the Augusta Rule Works (14-Day Tax-Free Rental Rule)
1. Up to 14 Days of Tax-Free Rental Income
IRS Section 280A(g) says if you rent your home for 14 days or less in a calendar year, the rental income is completely tax-free and isn’t reported on your federal tax return.
2. Fair Market Value Matters
If your business rents your home, you must charge a reasonable fair market rental rate — similar to local meeting space or event venue rates. Day
3. Income Isn’t Reported
Income from these short-term rentals does not go on Schedule E or Form 1040 — it’s excluded from taxable income. Tax Samaritan
4. Doesn’t Affect Your Tax Return
Since this income is exempt from federal tax, you don’t claim depreciation deductions or other rental-related deductions for those days. Tax
Step-by-Step Guide to Implementing the Augusta Rule
Here’s exactly how to make this tax strategy work for your blog readers:
1. Determine Fair Market Rent
Research comparable local venues (hotel meeting rooms, event spaces, coworking spaces) to set a fair daily rental rate. Mark J. Kohler
2. Create a Written Rental Agreement
Draft a simple rental contract between you (the homeowner) and your business. Include:
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Rental dates
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Rental purpose
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Fair market daily rate
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Total days rented
This shows the IRS it’s a legitimate rental.
3. Conduct a Legitimate Business Event
Host a meeting, retreat, training session, or strategic planning event at your home.
Keep meeting agendas, attendee lists, and notes to prove the business purpose.
4. Invoice Your Business
Send an invoice from you to your business for the rental payment. Have the business pay you directly and document the payment. manifest.ly
5. Keep Detailed Records
Save:
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Rental agreement
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Market rate comparables
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Agenda and minutes
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Invoices and payment records
These are crucial for audit protection.
Examples With Numbers
Homeowner Using Event Rental
If a homeowner rents their home during a high-demand event (e.g., local festival weekend) for $1,000/day for 10 days, that’s:
$10,000 in tax-free income.
Business Owner Using the Rule
A business rents its owner’s home for four quarterly planning days at $1,500/day (8 total days):
$12,000 paid by the business, deductible as a business expense.
In both examples, the homeowner keeps that income tax-free on their personal return.
Key Rules & IRS Compliance Tips
To stay fully compliant:
✔ Stay Under 14 Days
If you exceed 14 rental days, you must report rental income normally.
✔ Charge a Fair Market Rate
Use local comparables to justify your pricing — not too high or too low.
✔ Document Everything
Written agreements, agendas, attendee lists, and invoices protect you in case of IRS review.
✔ Legitimate Business Purpose
Rentals should be tied to valid business activities — social events don’t qualify.
Frequently Asked Questions
Does the Augusta Rule work on primary and vacation homes?
Yes — both types of homes qualify, as long as you meet the 14-day rule.
Do I need to report the income?
No — rental income under this rule is excluded from federal taxable income.
Can my business deduct the rental?
Yes — if the rental is a legitimate business expense with proper documentation.
Final Thoughts for Homeowners & Investors
The Augusta Rule is one of the most powerful tax strategies available for homeowners and investors — yet it’s under-utilized. When executed correctly, it can help you earn tax-free rental income, reduce your business’s taxable profit, and make your property work harder for you. TaxZero
Before applying this strategy, always consult your tax advisor to ensure compliance and maximize your benefits.
Primary Augusta Rule / Section 280A References
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TaxZero – Augusta Rule Overview
https://www.taxzero.io/blog/how-to-use-augusta-rule-tax-free-rental-income.html -
Golden Tax Relief – Understanding the Augusta Rule
https://goldentaxrelief.com/understanding-the-augusta-rule-for-tax-benefits/ -
XOA Tax – Augusta Rule Implications
https://www.xoatax.com/the-augusta-rule-tax-loophole-implications/ -
Tax Samaritan – Augusta Rule for Business Owners
https://www.taxsamaritan.com/tax-article-blog/augusta-rule-business-owners-guide/