The Augusta Rule: Home Rental Income and the Business Deduction

Business owners sometimes hear that they can rent their home to their own corporation, collect rent personally, and exclude that rent from income under the Augusta Rule. The idea is real, but it is not a shortcut. The strategy depends on a real business event, reasonable rent, and documentation that would make sense even if no tax benefit existed.

The rule comes from Internal Revenue Code Section 280A(g). If a dwelling unit is used as a residence and is rented for fewer than 15 days during the tax year, the rental income is not included in gross income. The tradeoff is that the homeowner does not deduct rental expenses for that short-term rental use.

For a business owner, the planning opportunity comes from the business side. A corporation or partnership may be able to deduct rent paid for legitimate business use of the home, while the owner excludes the rental income personally, provided the arrangement is properly structured and documented.

How the strategy works

The basic structure is simple, but each step matters. The business rents the owner's home for a real business purpose, pays a reasonable fair-market rental rate, and keeps records showing what happened. The owner keeps total rental use of the residence below 15 days during the year.

For an S corporation owner, the rent deduction can reduce the corporation's pass-through income. The owner may exclude the rent personally under Section 280A(g), assuming the home qualifies and the rental period stays under the limit. Sole proprietors should be especially careful, because a person generally cannot rent property to themselves.

• Use the home for a real business meeting, planning session, training program, staff retreat, or other appropriate business use.
• Set the rent using comparable venue pricing or other fair-market support.
• Create an invoice from the homeowner to the business.
• Have the business pay the invoice directly.
• Keep records in both the business and personal tax files.

The business purpose has to be real

The Augusta Rule does not turn a personal gathering into a business deduction. If the business pays rent, the business must be able to show that it paid for ordinary and necessary business use.

Good facts usually include an agenda, business materials, a calendar entry, an attendee list, meeting notes, and a clear reason why the home was used. Weak facts include vague meetings, family members attending for personal reasons, no written materials, or rent payments that look like a way to move cash from the business to the owner.

Entertainment-focused events are especially risky. If the purpose is mainly social, recreational, or personal, the deduction is much harder to defend. Employee events and business meetings can have different tax treatment, so the event type should be identified before the business pays the owner.

Fair-market rent is essential

The business cannot simply choose a large number and call it rent. The rental rate should be based on what an unrelated party would pay for comparable space in the same market for a similar use.

Useful support may include hotel meeting-room quotes, private meeting-space rates, retreat or event venue pricing, local club or conference-room rates, or a written valuation for larger amounts. Keep the support in the tax file before the return is prepared.

Recent Tax Court cases are warnings

Recent cases show why execution matters. In Sinopoli v. Commissioner, an S corporation deducted large rent payments to shareholders for meetings at their homes. The Tax Court found the owners had weak documentation of the meetings and had not established that the claimed rent was reasonable. The court allowed only a much smaller rent deduction.

In Jadhav v. Commissioner, the taxpayers followed a tax plan that told them to rent residential properties to an S corporation, but they did not obtain appraisals or other evidence supporting the rental rates. The Tax Court sustained the IRS's disallowance of the rent deductions because the record did not support a reasonable fair rental value.

The lesson is not that the Augusta Rule cannot work. The lesson is that the business deduction is separate from the owner's income exclusion. The business still has to prove an ordinary and necessary expense, a real business purpose, and a reasonable amount.

Form 1099-MISC and personal reporting

Rent paid by a business is generally reported on Form 1099-MISC when it meets the reporting threshold for that year. IRS 2026 general instructions state that the threshold for certain information returns increased from $600 to $2,000 for tax years beginning after 2025, with inflation adjustments beginning in 2027.

Even when the rent is excluded under Section 280A(g), the reporting still needs to be handled carefully. If the business issues a Form 1099-MISC, the owner and tax preparer should address the matching issue on the personal return rather than ignoring the form.

A practical checklist

Before using this strategy, the business owner should be able to answer yes to each of these items.

• The home will be rented for fewer than 15 days during the year.
• The event has a real business purpose.
• The rent is based on fair-market support.
• The business has an agenda, attendee list, notes, and meeting materials.
• The owner invoices the business and the business pays the invoice directly.
• Any required Form 1099-MISC reporting will be handled.
• The owner and business both keep the records.

Before using the rule

The rent, business purpose, and records need to support the transaction. Before the business pays rent, document how the home will be used and how the amount was determined.