The Augusta Rule is a lesser-known aspect of the tax code that more business owners should be taking advantage of. Whether you’re completely unaware of the rule or simply misunderstanding how it works, we want to put you in a position to get the most out of your money.
For the golf fans reading this, yes, the “Augusta” Rule is indeed named after the famed Masters Tournament. More accurately, it’s named after Augusta, Georgia, and residents who frequently rent out their homes to attendees of the tournament. Let’s dive into how the rule works for business owners so you can get out of the rough and onto the green.
What Is The Rule?
The rule exists in the tax code under U.S. Code § 280A. Overall, this code focuses on why you can’t deduct the use of your home for business purposes. However, the Augusta Rule comes into play in subsection g which specifies that:
“Notwithstanding any other provision of this section or section 183, if a dwelling unit is used during the taxable year by the taxpayer as a residence and such dwelling unit is actually rented for less than 15 days during the taxable year, then—
(1)no deduction otherwise allowable under this chapter because of the rental use of such dwelling unit shall be allowed, and
(2)the income derived from such use for the taxable year shall not be included in the gross income of such taxpayer under section 61.”
What this means is that if the home is rented out for 14 or fewer days during the year, you do not have to report this as income for tax purposes. Note that this simply says residence or dwelling which means your primary residence, second home, or vacation home can all qualify for this exemption.
Renting to Your Own Business
One of the biggest advantages here is the opportunity to occasionally rent your home(s) to your own business while gaining a two-fold tax advantage. You will be able to rent your home to your business for certain events, meetings, conferences, and so on. The purpose is mostly irrelevant as long as the home is not your primary place of business and you’re not simply funneling money through the home(s).
Let’s say your company leadership commits to a two-week off-site conference. In this example, your company looks at the market and decides the proper rental price for two weeks at your home would be $1,500. This $1,500 goes into your pocket as the homeowner yet does not have to be reported as gross income. On top of that, your company can file this as a deduction because it’s a business expense. This is a legal form of “double-dipping” that provides an advantage to yourself and your company.
Tread Carefully, Work With An Attorney
If you’re looking to take advantage of this, you need to tread carefully to ensure you don’t end up stumbling through the audit process with the IRS down the line. If you swing and miss you could end up with tax issues for yourself and your company, putting you several strokes behind the competition.
Golf puns aside, our team is here to help you get this right. Contact The Law Offices of Tyler Q. Dahl and we’ll help you implement this strategy properly.
Dahl Law Group
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