The Augusta Rule: Tax Benefits for Homeowners Renting Their Property

The Augusta Rule, also known as Internal Revenue Code Section 280A(g), offers a valuable tax benefit for homeowners who rent out their property for short periods. Named after the city of Augusta, Georgia, where homeowners often rent their homes during the Masters Golf Tournament, this rule allows homeowners to rent their property for up to 14 days per year without having to report the rental income.

How Does the Augusta Rule Work?

Under the Augusta Rule, homeowners can rent out their primary residence or a second home for up to 14 days per year and exclude the rental income from their taxable income. This means that if you rent your home for 14 days or fewer, you do not have to report the rental income on your tax return. As a result, the income is tax-free.

This rule applies regardless of the rental rate, so homeowners can charge market rates or even higher rates — often the case for events like the Masters — and the rental income will not be subject to federal income tax provided the rental period does not exceed 14 days.

Key Requirements and Considerations:

• 14-day limit: The primary restriction is that the rental period must not exceed 14 days each year. If the property is rented for more than 14 days, the rental income must be reported, and the taxpayer must follow the regular tax rules for rental income.
• Primary or secondary residence: The property rented out must be the taxpayer’s primary residence or a second home. Renting out a property that is classified as a business or investment property doesn’t qualify under this rule.
• No deductions for certain expenses: While the rental income is excluded from taxable income, homeowners cannot deduct expenses of the rental such as maintenance fees for the days the property is rented. However, mortgage interest and property taxes are deductible to the extent otherwise allowed as itemized deductions on Schedule A.

Benefits of the Augusta Rule

The most obvious benefit of the Augusta Rule is the ability to earn tax-free rental income. This is especially beneficial for homeowners who rent their property for high-demand events or short periods and don’t want to deal with the complexities of reporting rental income and expenses.

Whether renting out your property for special events or just occasional extra income, this rule offers a simple and effective way to leverage your home for financial gain while minimizing tax liability. Contact us to learn more about the Augusta Rule. We are here to help.

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Upcoming Series: Real Estate Rental Tax Opportunities

This article is part of a series exploring the various real estate rental tax opportunities available to individuals and small business owners. Whether you’re an individual or small business owner, this series will cover essential strategies and insights to help you maximize tax benefits.

Coming soon:

• Maximizing Tax Benefits by Utilizing the Short-Term Rental Strategy
• How to Qualify for Real Estate Professional Status and Its Tax Benefits
• When the Augusta Rule Fails: Tax Court Denies S Corporation’s Rent Deduction

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