Tax-Free Income from 14-Day Augusta Rule for S Corporation Owners

The Augusta rule gets its name from the Masters Golf Tournament, where some members and others who live in the area receive tax-free rent by renting their homes for a week or two. You don’t have to live in Augusta to benefit from this rule.

IRC Section 280A(g), also known as the Augusta rule, states: “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.”

Example. Fred rents his home at $3,000 a day for 14 days. Under the Augusta rule, he qualifies for no rental deductions. But he also excludes all the rent, the full $42,000 ($3,000 x 14) from his income.

If you want to discuss the Augusta rule, please call me on my direct line at 408-778-9651.