The Augusta Rule, also known as Section 280A of the Internal Revenue Code, allows homeowners to rent out their homes for up to 14 days per year without having to report rental income. This tax loophole doesn’t only apply to individuals with rental properties. This can be particularly advantageous for business owners who use their homes for business purposes, such as hosting company meetings or events.

1. Rental Income Exclusion: Under the Augusta Rule, you can rent out your home for up to 14 days per year without having to report the income. This rental income is completely tax-free to the S corp owner.

2. Business Expense Deduction: If you rent your home to your business for meetings or events, the business can deduct the rental expense as a business expense. This reduces the taxable income of the business, leading to tax savings.

3. Double Benefit: Essentially, you get a double benefit – you receive tax-free income from the rental, and your business gets a deduction for the rental expense. This can lead to significant tax savings, especially if you are in a higher tax bracket.

Practical Example

Let’s say you own a consulting business (taxed as an S corp) and you use your home to host a few company meetings or client events each year. You determine that the fair rental value of your home for such events is $1,000 per day. If you host 10 events, your business pays you $10,000 in rental fees. Under the Augusta Rule:

• You do not have to report the $10,000 rental income on your personal tax return.
• Your business can deduct the $10,000 as a business expense, reducing its taxable income.

Key Considerations

• Fair Market Value: The rental amount must be at fair market value. It should be comparable to what others in your area charge for similar properties. Reviewing hotel or Airbnb rates in your area is a good way to determine this.
• Documentation: Maintain proper documentation, including rental agreements, invoices, and evidence of the business purpose of the meetings or events.
• Compliance: Ensure that the rental period does not exceed 14 days in a year to qualify for the tax-free income exclusion.
• No Double Dipping: If you also take the home office deduction, make sure to exclude this space when you are considering the fair value of the space. You can’t take a two deductions (Augusta Rule and home office deduction) for the same space.
• Participation Requirement: There is no minimum requirement for participation held at the property. Technically, I think the meeting could just be yourself however that may be more highly scrutinized compared to a larger group. 
• Own or Rent: This area is a bit gray, but from all of the guidance, I believe you qualify to utilize the Augusta Rule if you own or rent the residence.