The Definitive Guide to
The Augusta Rule
How to legally transfer over $14,000 from your business to your personal bank account—tax-free—by renting your home to your S-Corp.
Why Would Congress Allow This?
It is rare that the IRS gives you a "free lunch." Usually, every dollar of income is taxed, and every deduction is scrutinized. The Augusta Rule is a fascinating exception because it wasn't originally designed for small business owners—it was designed for wealthy homeowners in Augusta, Georgia.
Every year, the Masters Golf Tournament descends upon Augusta. The town, relatively small, runs out of hotel space almost immediately. For decades, local residents have rented out their homes to golfers, corporate sponsors, and spectators for astronomical sums during tournament week.
In the 1970s, the residents of Augusta lobbied Congress. They argued that it was unfair to force them to treat their homes as "rental businesses" just because they rented out their homes for one week a year. They argued it was "incidental" income.
Congress listened. They enacted Internal Revenue Code Section 280A(g).
IRC Section 280A(g)(2):
"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... the income derived from such use for the taxable year shall not be included in the gross income of such taxpayer..."
The law is simple but powerful. It states two things:
- You do not report the income.
- You cannot deduct expenses associated with the rental (like cleaning or utilities), essentially treating the activity as if it never happened for tax purposes.
While the residents of Augusta were happy, savvy tax strategists realized this statute applied to everyone in the United States. And specifically, it created a massive arbitrage opportunity for S-Corp owners.
How S-Corp Owners Use It
The "arbitrage" works because you sit on both sides of the transaction. You are the landlord (personally), and you are the tenant (your business).
Normally, when your business pays you money, it is taxable. It's either Salary (W-2, taxed), Dividends (taxed), or Distributions (not taxed, but not deductible to the business).
Rent is different.
The "Double Dip" Effect
When your S-Corp rents your home for a valid business meeting, two things happen simultaneously:
Get a Deduction
Your S-Corp writes a check for "Facility Rental." This is a standard operating expense, just like renting a WeWork or a hotel conference room. It lowers the business's taxable profit.
Pay Zero Tax
You receive the check. Because you rented the home for 14 days or less, Section 280A(g) says you ignore this income. It does not go on your 1040. It is completely tax-free cash.
This effectively moves money from a taxable bucket (your business profit) to a tax-free bucket (your personal savings) legally. This is a cornerstone of strategic tax planning. Explore our full range of tax planning services to see how we help business owners implement strategies like this.
Valid Business Purposes
You cannot just pay yourself rent for sleeping in your own bed. The business must have a legitimate reason to rent a facility. This strategy is especially popular among physicians who own practices — learn more in our physician tax planning guide. Common valid reasons include:
- Monthly Board of Directors Meetings: Reviewing P&L, approving strategy, compliance minutes.
- Strategic Planning Sessions: Quarterly deep-work sessions to map out company direction.
- Employee Retreats: Team building or training off-site (even if "off-site" is your home).
- Video/Content Production: Using your home aesthetic as a studio set.
- Client Entertainment: Hosting a dinner or event for clients (requires strict documentation).
If you are a single-member S-Corp, the "Board Meeting" is the most common and defensible strategy, provided you actually hold the meeting and document it.
How Much Can You Charge?
This is where most people get nervous, and rightfully so. You cannot charge $50,000 for a one-day meeting in a one-bedroom apartment. The rent must be "Reasonable" and based on "Fair Market Value" (FMV).
FMV is defined as what a willing buyer (tenant) would pay a willing seller (landlord) in an arm's length transaction. Since you are both parties, you must look to the outside market for data.
How to Determine Your Daily Rate
You are not renting a bedroom; you are renting a meeting facility. Do not look at Airbnb prices for a bedroom. Look at prices for event spaces, hotel conference suites, and peerspace listings.
Step-by-Step Comparables Process:
- Identify Comparable Venues: Look for local hotels, country clubs, or co-working spaces that offer meeting rooms.
- Match the Amenities: Does your home offer a large conference table (dining table)? A/V equipment (large TV)? Privacy? Catering capabilities (kitchen)? WiFi? Parking?
- Get Quotes: This is critical. Call the local Marriott or WeWork. Ask: "How much to rent a private meeting suite for 8 hours for 4 people, including setup, A/V, and cleaning fees?"
- Print to PDF: Save these quotes. If the Marriott creates a quote for $1,200/day, and your home is nicer than the Marriott conference room, $1,200 is your defensible daily rate.
The Multiplier Effect
Once you establish a daily rate, sticking to the 14-day limit is key.
- Daily Rate: $1,000 (Conservative example)
- Max Days: 14
- Total Deduction: $14,000
- Tax Saved (approx 30% rate): $4,200
If you have a luxury home in a high-cost-of-living area (NYC, SF, Miami), your daily rate could easily be $2,500+, making this a $35,000 deduction.
Audit Defense: If It Isn't Written, It Didn't Happen
The IRS is aware of this strategy. They don't mind it, as long as it is real. If you just transfer money and label it "Augusta," you will lose in an audit. You need a "Paper Trail of Intent."
The 4 Essential Documents
1. The Rental Agreement
A standing lease agreement between the S-Corp and You. It should state that the S-Corp desires to rent the property for meetings from time to time, and sets the terms (e.g., "Company agrees to pay $1,200 per daily use").
2. The Invoice
For every rental, generate an invoice. "To: My Company. From: Me. Date: June 15th. Service: Facility Rental for Board Meeting. Amount: $1,200."
3. Corporate Minutes
This proves the business purpose. "Meeting called to order at 9:00 AM at [Home Address]. Attendees: [Names]. Topics Discussed: Q2 Financial Review, Marketing Budget Approval. Meeting adjourned at 4:30 PM."
4. Proof of Payment
A physical check or a digital transfer. Do not just make a journal entry. Money must move.
Why Minutes Matter Most
In tax court cases regarding home office and rental deductions, the judge almost always looks for the minutes. If you claim you had a 12-hour strategic planning retreat, but you have no notes, no agenda, and no resolutions passed, the judge will classify it as a personal day.
How to Ruin This Strategy
While powerful, the Augusta Rule is strict. There is no gray area on the day count. Here are the most common ways business owners blow it.
1. The 15th Day Trap
The law says "less than 15 days." If you rent your home for 14 days, it is tax-free. If you rent it for 15 days, ALL 15 days become taxable. You fall off the cliff. There is no pro-rating.
Best Practice: Stop at 14. Or 13 to be safe.
2. The "Party" Problem
Do not label the event "Christmas Party" or "Summer BBQ" unless you have a robust business component. Entertainment expenses are generally disallowed under current tax law (TCJA). Facility rentals are allowed, but if the facility is just used for a party, the IRS may reclassify it as entertainment. Always focus on the meeting aspect.
3. Price Gouging
"I'll charge $10,000 for a Tuesday because I'm the CEO." No. This is tax evasion. If reasonable rent is $1,000 and you charge $10,000, the IRS will disallow the $9,000 excess and potentially treat it as a dividend (taxable to you, not deductible to the corp).
4. Sole Proprietors
You cannot rent to yourself. If you are a Sole Prop (Schedule C), you are legally the same entity as your business. You cannot write a check from your left pocket to your right pocket and call it an expense. You MUST be a separate legal entity (S-Corp, C-Corp, or Partnership) to use this strategy.
Common Questions
About the Author: Bryan Martin, CPA
Bryan Martin is the founder of Taxstra and a Certified Public Accountant specializing in tax strategy for high-income business owners and real estate investors. He focuses on proactive planning to help clients legally minimize their tax liability.
Read Full Bio →Authoritative Sources
- IRC §280A(g) — Special rule for residence used less than 15 days
- IRC §280A(d) — Use as residence (14-day / 10% rule)
- IRC §162 — Trade or business expenses (ordinary & necessary)
- IRS Publication 527 — Residential Rental Property
Citations reflect U.S. federal tax law as of the article's last reviewed date.
Strategies Often Paired With the Augusta Rule
S-Corp Election & Reasonable Compensation
The Augusta Rule pairs naturally with an S-Corp — the corporate deduction creates the tax-free transfer.
Home Office Deduction
Home office covers your dedicated workspace year-round. Augusta covers common areas for specific meeting days. They coexist.
Cost Segregation Studies
For real-estate-owning S-Corps, cost seg accelerates depreciation on the corporate side while Augusta moves cash personally.
Augusta Rule Calculator
Estimate the maximum tax-free rent your dwelling can support based on local fair market comps.
Implementation is Everything.
Knowing the rule is 10% of the battle. The other 90% is the paper trail. At Taxstra, we provide the lease agreements, corporate minute templates, and guidance to make this strategy audit-proof.