The Augusta Rule: 14 Tax-Free Days a Year

There is a provision in the tax code that lets you rent your home to your own business for up to fourteen days a year, deduct the rent through the company, and report nothing personally. It is not a loophole and not aggressive planning — it sits in Section 280A(g) of the Internal Revenue Code, and it is the only place in the code where income is simply not reported.

It is known as the Augusta rule after the homeowners who rent out their houses during the Masters tournament. Business owners use the same provision for board meetings, planning sessions and annual reviews.

In this article, we set out how the rule works, what a defensible rate looks like, the documentation that supports it, and the situations where it does not apply at all.

1. What the Rule Actually Says

Where a dwelling is rented for fewer than fifteen days in a tax year, the rental income is excluded from gross income and the related rental expenses are not deductible. That is the whole mechanism.

Applied to an owner-managed company, it produces an unusual result. The company deducts the rent as a business expense, and the homeowner reports none of it as income — the same dollars are deductible on one side and untaxed on the other.

At $1,500 a day for fourteen days, that is $21,000 moved out of company profit and into personal hands without personal tax. The value depends on your own marginal position, and for a New York City business it also reduces the base for city business tax, as our article on the unincorporated business tax explains.

One asymmetry is built into the provision and worth stating. Because the rental income is excluded, the expenses attributable to those days are not deductible on the personal side either. There is nothing to claim against the rent, which is precisely why the arrangement is clean rather than clever.

The exclusion also applies to a second home, provided the same day count is respected across the year. Owners of a weekend property sometimes find the comparable rate there is higher than in the city, and our pied-a-terre guide covers how a second home is treated more generally.

2. What a Defensible Daily Rate Looks Like

The rent has to be reasonable, and reasonable means what an unrelated party would charge for comparable space.

The practical method is to price the alternative. Obtain written quotes from two or three local venues — a hotel meeting room, a private dining room, a co-working conference space — for a room of similar size and duration, and keep them. In Manhattan those quotes support a materially higher daily figure than in most of the country, which is a genuine local advantage.

As the table shows, the rate is only one of five elements, and it is rarely the one that fails. The positions that collapse are the ones with no agenda, no minutes and no payment — a rent claimed at year end for meetings nobody can describe.

3. Who Cannot Use It

The provision requires two separate parties: a homeowner and a company that pays rent. A sole proprietor has only one.

A sole proprietor or single-member LLC without a corporate election cannot rent to themselves, because there is no second entity to pay the rent or claim the deduction. The rule is available to owners of S corporations, C corporations and partnerships where the entity is genuinely distinct from the individual.

There is also an interaction to avoid. A room already claimed as a home office is being used for business every day, which sits awkwardly against a claim that the same space was rented for fourteen discrete meetings. Where both are in play, keep the spaces distinct — our article on the home office and accountable plans covers the other route.

Partnerships sit in a middle position. The entity is distinct from the partners, so rent can be paid and deducted, but the deduction flows back through to the partners in proportion to their interests — which dilutes the benefit for a partner renting their own home to a firm they only part-own.

4. The Objection: It Looks Too Good

However, some argue that any arrangement paying yourself untaxed money invites trouble, and that the sensible course is to leave it alone.

The concern is misplaced as to the provision and well placed as to the execution. The exclusion is statutory and unambiguous; what fails examination is documentation, not the concept. The recurring failures are inflated rates with no comparable quotes, meetings that took place only on paper, and rent recorded as a journal entry rather than paid.

Two disciplines remove most of the risk. Hold real meetings that would have happened anyway — an annual planning session, a quarterly review — and pay the rent by bank transfer on the day, so the company's records and your own bank statement agree. Those records belong with the file described in our article on IRS audits.

Scale is the other discipline. Fourteen days at a rate a hotel would charge is a modest, defensible number; fourteen days at a rate no venue in the city commands is the version that attracts attention. The provision rewards restraint, and the difference between the two is a folder of quotes.

5. Final Thoughts

The Augusta rule is a modest, recurring benefit that costs almost nothing to maintain once set up. Fourteen days, a rate supported by quotes, real agendas, and a payment that shows in both sets of records.

It works best alongside the other owner mechanisms rather than alone. An accountable plan handles recurring costs, payroll handles the salary question, and this provision handles a small number of genuine business days each year.

The provision and its limits can change, so confirm the current position with a US CPA before relying on it. If you are structuring a New York company and want these pieces set up together rather than discovered one at a time, speak with our team.

Reinvent NY provides business consulting, operational support, and coordination services. Legal advice and immigration filings are handled by independent licensed attorneys. Real estate services are provided through licensed professionals and applicable brokerage relationships. This article is for informational purposes only and does not constitute legal or investment advice.

More for business owners: NYC Unincorporated Business Tax vs S Corp, S Corp vs LLC for a New York Business, Estimated Tax for New York Business Owners.