How the IRS Augusta Rule Can Benefit High-Income and Wealthy Households

Also known as Section 280A(g), the “Augusta Rule” is a powerful and often overlooked tax strategy that can allow homeowners to receive tax-free income by renting out their residence for up to 14 days per year.

While it originated with homeowners in Augusta, Georgia, who wanted to rent their homes during the Masters Tournament without being taxed on their income, this provision is now being strategically leveraged by high-income individuals, business owners, and family offices across the country.

In this article, we’ll break down how it works, who qualifies, how to document it properly, and how high earners and wealthy families can use it to extract tax-free dollars legally.

What Is the Augusta Rule?

The Augusta Rule is found in Internal Revenue Code Section 280A(g) and states that:

If you rent out your personal residence for 14 days or fewer during the year, the rental income is completely excluded from your taxable income.

In other words, you can earn income—potentially thousands of dollars—without paying any federal income tax on it, so long as you meet the requirements.

Who Can Benefit?

While any homeowner can technically benefit from this rule, the real value shows up for:

• Business owners with LLCs, S Corporations, or Partnerships
• Executives who regularly hold meetings or retreats at home
• Family offices hosting board or planning sessions
• Real estate investors and entrepreneurs looking for tax-optimized income streams

The tax-free nature of the income is particularly compelling for high-income earners who are otherwise subject to the top marginal tax brackets.

A Practical Example

Let’s say you’re the sole owner of an S corporation. You occasionally hold strategic planning sessions at your home with your executive team or advisors.

If you rent your home to your business for 14 legitimate business-use days throughout the year (one per month plus a couple of offsites), and your home’s fair rental value is $3,000 per day, you could receive $42,000 in tax-free income annually.

Your business deducts the rental as an ordinary and necessary business expense, and you report nothing on your personal return—no Form 1099, no Schedule E, no income recognition whatsoever.

Augusta Rule Requirements

✅ 1. Use Your Personal Residence

This can include your primary home, vacation property, or other personally used dwellings.

✅ 2. Rent It for 14 Days or Less Per Year

Any rental income exceeding 14 days becomes taxable—and you may need to report expenses and depreciation, which can introduce additional complexity.

✅ 3. Establish Fair Rental Value

You need to prove what an unrelated party would reasonably pay to rent your home for business use. This can be substantiated through:

• Local luxury event venues and their pricing
• Short-term rental market comps (Airbnb/VRBO)
• Written documentation from a real estate professional

✅ 4. Document the Business Use

Keep detailed records such as:

• Meeting agendas
• Attendee lists
• Resolutions showing the business purpose
• Invoices from your business to yourself
• Payment logs and deposit records

IRS Reporting Requirements

Here’s where things get interesting:

• You do not need to report the income on your Form 1040, as long as you meet the 14-day or fewer rule.
• Your business can deduct the rental expense as a legitimate business cost.
• No 1099 is required under current IRS guidance when renting from an individual for 14 days or fewer.

But documentation is critical. You’re operating in a legitimate tax gray area that invites scrutiny if not appropriately handled. Treat the transaction as if the IRS will audit it—and you’ll be fine.

Strategic Uses for High-Income Households

1. Family-Owned Businesses

Hold board meetings, retreats, or planning sessions at a family member’s residence—spreading tax-free income across generations.

2. Law Firms, Advisory Firms, or Medical Practices

Bring your partners or team together for strategy days in your home’s conference-friendly space.

3. High Net Worth Tax Strategy

Use this strategy in coordination with other approaches, such as income shifting, entity structuring, and charitable giving, to reduce your adjusted gross income (AGI) and stay under the surtax thresholds.

4. Tax-Free Cash Flow for S Corporation Owners

An S corp can deduct the rental payment, and the shareholder avoids both income tax and self-employment tax on the rental payments. This is one of the few legal ways to withdraw money from a business completely tax-free.

Common Mistakes to Avoid

1. Exceeding the 14-Day Limit – Even one extra day invalidates the exemption.
2. Not Paying Yourself – The income must actually be paid out to you personally and documented in your records.
3. Improper Valuation – The “$5,000 a night” valuation on your condo needs to hold up under IRS scrutiny.
4. Lack of Business Purpose – Deductions must be ordinary, necessary, and adequately documented.

Final Thoughts: Is the Augusta Rule Right for You?

If you’re a high-income household or own a business, the Augusta Rule is a sophisticated but fully legal way to convert otherwise taxable dollars into tax-free income. It’s a small slice of the tax code with outsized benefits—when executed properly.

Used in concert with other advanced planning strategies, it’s a clear example of how the wealthy legally reduce their tax liability by understanding the rules better than the IRS expects you to.

Work With a Financial Advisor Who Specializes in High-Income Planning

As a CFP®, EA, ECA (Equity Compensation Associate), and CRPS®, I help high-income individuals, executives, and business owners design financial strategies that leverage the tax code—not fight it.

Whether it’s optimizing your equity compensation, planning for early retirement, or extracting tax-free dollars from your business, our approach is simple: Make complexity work for you.

📩 Let’s talk about whether the Augusta Rule makes sense for your unique situation.