Imagine collecting $14,000 in rental checks this year and reporting exactly zero of it on your personal tax return — while your S-corporation simultaneously deducts every dollar as an ordinary business expense. That is not a loophole, a gray area, or a creative interpretation. It is the explicit text of Internal Revenue Code Section 280A(g), and it has been quietly sitting in the code since 1976.
The provision is informally called the Augusta Rule because residents of Augusta, Georgia have used it for decades to rent their homes to spectators during the Masters Tournament without owing any federal income tax on the receipts. The same statute that protects a homeowner letting out their guest room for one tournament week also protects a business owner who rents their personal residence to their own corporation for board meetings, strategy retreats, and client events — up to 14 days a year.
The strategy is powerful. It is also one of the most aggressively misused provisions in the entire code. In 2023 the Tax Court reduced one S-corporation's claimed Augusta Rule deduction from $290,000 to $10,500 because the taxpayer treated the provision as an unlimited rent-to-yourself faucet rather than a narrowly drawn exception. This guide walks through how the rule actually works, the documentation you need to survive an audit, and the planning moves that turn a fragile tax position into a defensible one.
What Section 280A(g) Actually Says
The statutory text is mercifully short. Section 280A(g) reads:
"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 —
- No deduction otherwise allowable under this chapter because of the rental use of such dwelling unit shall be allowed, and
- The income derived from such use for the taxable year shall not be included in the gross income of such taxpayer under section 61."
Two things happen inside that paragraph. First, rental income from a personal residence rented fewer than 15 days a year is excluded from gross income. The homeowner does not report it. Second, the homeowner cannot deduct any of the rental-use expenses (utilities, depreciation, prorated mortgage interest tied to the rental days) on the personal return. The trade is income out, deductions out — and for short windows of rental use, that trade overwhelmingly favors the homeowner.
The provision does not say the renter cannot deduct the rent. It only constrains the homeowner. If the renter happens to be a separate legal entity — an S-corporation, C-corporation, partnership, or multi-member LLC owned by the homeowner — that entity can deduct the rental payment under the ordinary-and-necessary business expense standard of Section 162 like any other arm's-length expenditure.
That asymmetry is what makes the strategy work. The business gets a deduction. The owner gets tax-free cash.
Who Can Use the Strategy
The 14-day exclusion is available to any individual taxpayer who uses a dwelling unit as a residence. Primary homes, vacation homes, and even rented apartments where the taxpayer has the right to sublease all qualify under the residence definition in Section 280A(d). The dwelling does not need to be a single-family house.
For the business-deduction side to mesh with the personal-exclusion side, three conditions matter:
- Separate legal entity. A sole proprietor reporting business income on Schedule C cannot pay rent to themselves and deduct it — the IRS treats it as one taxpayer moving money between pockets. S-corps, C-corps, partnerships, and multi-member LLCs taxed as partnerships are separate entities for this purpose. A single-member LLC that is a disregarded entity for tax purposes generally cannot use the strategy because it collapses back to the owner on the return.
- The owner must use the home as a residence. Renting a property you do not live in does not qualify. Renting a second home that you use personally during the year does qualify, as long as you meet the personal-use threshold (more than 14 days or 10 percent of rental days, whichever is greater) under Section 280A(d)(1).
- The rental is actually fewer than 15 days. Section 280A(g) operates on an all-or-nothing basis. Rent for 14 days and the exclusion applies to every dollar. Rent for 15 days and every dollar of rental income becomes taxable — there is no partial relief. The threshold is hard.
The Six Compliance Pillars
Surviving an Augusta Rule audit comes down to six things. Every disallowed Augusta Rule case the Tax Court has decided turns on one or more of these being missing or weak.
1. A Bona Fide Business Purpose for Each Day
The rental day must be tied to something the business actually needed. Quarterly board meetings, annual planning retreats, year-end strategy sessions, partner offsite days, client appreciation events, and team-building dinners all qualify if the business would have held the meeting somewhere anyway. A standing weekly "meeting" with yourself and your spouse — particularly if neither spouse is on payroll or has a real management role — looks like a tax stunt and will be treated as one.
A useful test: would the business have rented an outside conference room for this same event if your home were not available? If yes, you have a defensible purpose. If the meeting only exists because of the tax strategy, you have a problem.
2. Defensible Fair Market Rent
The single most common audit issue is rent that exceeds the local market rate. The IRS will not blink at $400 to $1,200 a day for a meeting space in most markets when supported by comparables. It will absolutely blink at $3,000 a day with no documentation, and the Tax Court in Sinopoli substituted a $500-per-day rate for one shareholder's claimed rate that was several times higher.
Gather three to five comparable quotes in writing before each event. Useful sources:
- Airbnb or Vrbo listings for entire-home rentals of comparable size in your zip code on the same dates
- Hotel meeting and conference room rental quotes for the same headcount
- Coworking and Peerspace event-space listings in your metro area
- Country club, restaurant private dining room, and event venue rate cards
Save screenshots dated to the time you obtained the quotes. If you can demonstrate that your rate sits at or below the median of three to five real-world comparables on the actual rental date, you have priced defensibly.
3. A Written Rental Agreement Signed in Advance
Draft a one- to two-page rental agreement between the business entity (as tenant) and the homeowner (as landlord). Sign it before the rental date — not after. Include:
- Specific rental date or date range
- Specific square footage or rooms used (the dining room and great room, the entire first floor, etc.)
- Daily rental rate and total payment
- Business purpose statement
- Cancellation terms
Treating the transaction with the same paperwork rigor you would use renting a hotel ballroom is the point. Casual or after-the-fact paperwork is what the Tax Court has cited repeatedly in disallowance cases.
4. Contemporaneous Meeting Minutes
For each rental day, prepare and retain a meeting agenda, an attendee list, and post-meeting minutes. The minutes do not need to be elaborate — they need to show that real business was conducted. A typical board meeting record might include the date and location, attendees, topics discussed (Q2 financial review, marketing budget approval, hiring plan for next quarter), decisions made, and action items assigned.
In Sinopoli the Tax Court allowed deductions only for the specific meetings where the taxpayers produced evidence of business being discussed, and disallowed every other claimed day. Sparse documentation does not just weaken the deduction at the margins — it eliminates entire rental days.
5. A Clean Money Trail
The business writes a check or initiates an ACH to the homeowner. The homeowner deposits it. Avoid cash, and avoid running the payment through other accounts on the way. The transaction should look unremarkable in the bank record of both the business and the personal account.
6. Form 1099-MISC From the Business to the Homeowner
This is the step most do-it-yourselfers miss. Section 6041 imposes an information-reporting obligation on the entity paying rent that is independent of whether the recipient owes tax on the income. For tax years beginning after 2025, a business paying $2,000 or more of rent to a single recipient in a calendar year must issue Form 1099-MISC with the rent reported in Box 1. The threshold was $600 in prior years.
The homeowner then receives a 1099-MISC reporting rent income that the IRS computer matching system expects to see on the personal return. Because the income is excluded under Section 280A(g), the right move is to report the 1099 on Schedule E and offset it with an other-expense line described as "Non-taxable rental — IRC §280A(g)" so the net is zero. Skipping the 1099 entirely because the income is non-taxable is the wrong move and produces a CP2000 matching notice the following year.
Calculating the Sweet Spot
For business owners running an S-corporation in the 24 percent federal bracket with no state income tax, a typical Augusta Rule plan might look like this:
- 12 rental days a year (one per month, leaving a two-day buffer below the 14-day ceiling)
- $750 per day fair market rent supported by Airbnb and hotel comparables
- $9,000 total annual rent
- Business deduction of $9,000 reduces taxable pass-through income, saving approximately $2,160 in federal income tax plus self-employment-equivalent payroll tax savings depending on the owner's compensation structure
- Personal income from the rental: $9,000 received, $0 reported
A higher-income owner in a 37 percent bracket in a state with a 9 percent income tax can see the same $9,000 produce $4,140 in combined tax savings. Across a five-year horizon that is more than $20,000 of after-tax cash flow generated by paperwork the owner controls.
The sweet spot is real, but it is bounded. Pushing toward 14 days, pushing rates above local market, and stacking rentals across multiple homes you also own quickly moves the strategy from defensible to audit-bait.
What the Sinopoli Case Tells Us About the Audit Pattern
Sinopoli v. Commissioner (T.C. Memo 2023-105) is the clearest published warning shot the Tax Court has fired at aggressive Augusta Rule planning. The S-corporation deducted approximately $290,000 in rent across three years for monthly meetings purportedly held at three shareholders' homes. The Tax Court allowed $10,500 — about 3.6 percent of what was claimed — and treated the rest as a constructive distribution.
Three failures drove the outcome. First, the claimed daily rate was untethered from any independent appraisal or market data; one shareholder's self-prepared rate justification was rejected and the court substituted the IRS's $500-per-day local market figure. Second, the meeting documentation was sparse and inconsistent; the deductions allowed were for the small subset of dates where minutes and agendas existed. Third, the shareholders did not include the rent receipts as income on their personal returns and did not document the 280A(g) exclusion treatment, creating the appearance that the strategy was being used to extract cash from the corporation rather than to compensate fairly for actual meeting space.
The lesson is not that Augusta Rule planning fails in court. It is that aggressive Augusta Rule planning without documentation fails in court, while modest planning with documentation passes.
Common Mistakes That Sink the Strategy
A short list of patterns that have produced disallowance or examination exposure in the field:
- Using the strategy as a sole proprietor or single-member LLC with no separate entity to pay the rent
- Renting more than 14 days in a year (any amount over 14 makes every dollar taxable)
- Pricing the rental based on what saves the most tax rather than on what the local market would pay
- Backdating rental agreements or generating minutes only after an IRS examination begins
- Holding "meetings" with no business agenda — birthday dinners, holiday parties, and family gatherings do not qualify
- Renting your home to your spouse's business or to a sibling-controlled entity without arm's-length terms
- Forgetting to issue the 1099-MISC and triggering a CP2000 matching notice
- Failing to record the 1099-reported amount and offsetting exclusion on Schedule E
Stacking the Augusta Rule With Other Owner Compensation Strategies
The Augusta Rule fits inside a broader owner-compensation toolkit and works well alongside several other planning moves:
- Reasonable salary calibration for S-corp owners. Augusta Rule rent is not wages; it does not affect the reasonable compensation standard the IRS applies to S-corporation owner-employees. You can pay yourself a defensible salary and also receive Augusta Rule rent in the same year.
- Accountable plan reimbursements. Mileage, home-office, and supply reimbursements through a documented accountable plan are deductible to the business and tax-free to the owner. The Augusta Rule fills a separate niche — payment for specific event use of the home — without disturbing accountable plan reimbursements.
- Solo 401(k) and SEP-IRA contributions. Augusta Rule rent is not earned income for retirement plan purposes, so it does not directly fund a Solo 401(k) deferral. But it also does not reduce the wages or net self-employment income that does fund the plan, so the two strategies coexist cleanly.
- Section 162(l) self-employed health insurance. The Augusta Rule does not affect the calculation. They are independent levers.
The conversion from "I have an S-corp" to "I have an S-corp paying me defensible rent for board meetings, defensible accountable plan reimbursements for home-office and mileage, defensible W-2 wages calibrated to my role, and defensible retirement plan contributions on the wages" is the point. No single strategy moves the needle dramatically. Stacking four or five thoughtful strategies often produces five-figure annual savings without taking aggressive positions on any of them.
Bookkeeping Mechanics
On the business books, the rental payment is a debit to Rent Expense (or a Meeting and Conference subaccount, which is often clearer) and a credit to cash on the date the check clears. Attach the rental agreement, the comparable rate documentation, and the meeting minutes to the journal entry so the entire supporting record travels with the transaction.
On the personal side, the 1099-MISC arrives in January of the following year reporting the rent in Box 1. Schedule E line 3 picks up the gross rent. A negative entry on the other-expense line (or a line described as "Section 280A(g) exclusion") offsets it. The schedule nets to zero, the IRS matching system is satisfied, and the exclusion is preserved.
Maintaining this paperwork year over year is not glamorous, but it is exactly the kind of recurring administrative task that separates planning that works in court from planning that does not.
Keep Your Strategy Documentation Audit-Ready From Day One
The Augusta Rule rewards careful record-keeping more than almost any other tax strategy on the books. Rental agreements, comparable rate screenshots, meeting minutes, payment records, and the entity-level 1099-MISC all need to live somewhere your future auditor can find them years from now. Beancount.io provides plain-text accounting that gives you complete transparency and version-controlled history over every transaction — including the rental payment journal entries, the supporting documentation references, and the offsetting exclusion line on Schedule E. No black boxes, no vendor lock-in, and a full audit trail for every dollar. Get started for free and see why developers and finance professionals are switching to plain-text accounting.
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