How to get preferential tax treatment just like the rich and powerful using IRS section 280A(g) known as the Augusta Rule.
What’s the Augusta Rule?
The Masters tournament happens every year — and even if you’re not a golfer or golf fan, you probably know that the Masters is one of the most prestigious golf tournaments in the world.
And while big names like Tiger Woods, Phil Mickelson, and Rickie Fowler hope to walk away with large paychecks after a weekend win…
Many residents in Augusta, Georgia (the site of the Masters) also come away as big winners — with substantial, TAX-FREE income they “earn” during the Masters.
Best of all, by copying their “win,” you too can earn thousands in extra personal tax-free income — year after year — and get a double-dip tax break for your business as well.
What’s Going On Here?
In the 1970s, Congress was working on a bill to limit tax-breaks for rich folks who rented out their vacation homes and were pocketing huge gobs of money tax-free.
But a group of powerful individuals who had previously been able to rent out their main homes on a short-term basis without any tax liability lobbied Congress to be able to keep their tax-free windfall.
The resulting compromise was Section 280A(g) which basically says that anyone can rent out their primary residence for up to 14 days a year, and can pocket that income completely tax-free. In fact, you don’t even have to report this income at all on your tax forms.
This provision in the tax code has often been dubbed “the Augusta Rule.”
Here’s Why It’s Called the “Augusta Rule”
Many of the powerful lobbyists back in the 1970s lived in Augusta, Georgia.
Once a year, hundreds of thousands of golf fans descend upon Augusta for the annual Masters golf tournament, and there are never enough motels to meet demand.
So Augusta homeowners routinely rent out their homes to Masters patrons. And depending upon location and opulence, many of these homes fetch up to $7,500 per day during Masters week.
In fact, a typical Augusta homeowner can make up to $25,000 renting out their home during Masters week.
Up until the mid-1970s, these Augusta homeowners had never had to report this income, but the new law threatened to change all that.
The compromise they struck with Congress has now become an incredible tax-saving tool of the rich.
But you don’t have to be rich to use it.
Any homeowner can use this provision to rent out their home for up to 14 days each year and pay zero taxes on that income.
What if I Don’t Want to Rent Out My Home To Strangers?
And if the idea of renting out your home to strangers doesn’t sound appealing…
Or if you don’t want to deal with the hassle of trying to list your home on VRBO…
You can still use the Augusta Rule to your advantage, as long as you are a business owner.
Here’s how:
You simply rent out your home to your business for a valid purpose and then your business pays you money that is considered tax-free personal income.
It’s essentially like taking a tax-free distribution out of your company.
In fact…
Small Business Owners Can “Double Dip” on the Tax Savings of the Augusta Rule
The best thing about using the Augusta Rule in this way is that you can essentially “double dip” on your savings.
Here’s how it works:
When your business pays you for the rental of your home, it comes in to you as personal, tax-free income that you can use for anything you want.
Then, your business gets to write-off the same amount as a legitimate business deduction, which reduces the tax burden the business pays.
This strategy works with any business structure, but it’s always best to consult your tax team or CPA first.
(Don’t have a tax team? Reach out to us to find out how to “rent” our Accredited Network CPA team.)
Here’s What You Need to Know
As with any tax strategy, there are specific rules you must follow to use the Augusta Rule. Our 2022 Pocket Tax Guide outlines the basics of the strategy and gives you some additional resources.
The basics are as follows.
- You can rent out your home to your business for a variety of reasons: events, company training, networking, video shoots, etc. Talk to a qualified tax specialist for more ideas or limitations
- Be sure to limit the renting out of your home to 14 days or less (whether to your business or to strangers). If you go just one day more, your house will be considered a vacation home and you will have to pay tax on ALL the income you receive
- You should charge market value. If you are renting to strangers, whatever they’ll pay becomes market value (which is why Augusta homeowners can get such high premiums during Masters week). If you are renting your home to your business, do some research on what similar size spaces in your area charge, and get documentation so you can justify it as a reasonable cost
- As long as you follow these rules, your business can deduct 100% of the expense of renting your home for its business purposes, and you get to pocket 100% of that as tax-free, personal income
More Ways to Save Money on Taxes
The Augusta Rule is just one of many dozens of tax strategies you can use to permanently lower your taxes or boost your income.
For a limited time, we’re giving away a free copy of our brand-new, 2019 Pocket Tax Guide for Small Business Owners.
Click here to get your free 2022 Pocket Tax Guide for Small Business Owners now.
This concise guide gives you the most important strategies, dates, numbers, and checklists to help you minimize your tax liability and keep money in your pocket under the Tax Cuts & Jobs Act, including:
- 3 critical tax-slashing strategies most accountants NEVER mention to small business owners that are an absolute must if you want to save your hard-earned money under the new 2017 Tax Cuts & Jobs Act…
- Easy reference tables and checklists for key tax facts like standard deduction amounts, which documents to keep, and important tax dates (so you don’t have to go looking on the IRS website for them)…
- A short-list of the top deductions small business owners take. Bring this list to your accountant and make sure you’re not missing out on any money-saving deductions you’re entitled to (note: if your accountant pushes them aside or says they could trigger an audit, that’s a red flag that they’re costing you money)
- 10 job ideas you can hire your kids to do for your business so you can save thousands per year on your tax bill while giving your children valuable business experience, plus…
- Additional links to resources including “How to Choose a Wealth-Minded CPA,” “300+ Tax Saving Deductions,” and “32 Employment Ideas for Your Child”
The tax system is designed to help you save on tax. Those who don’t use the laws to their advantage pay the most.
Here at Wealth Factory, we’re all for paying our fair share of taxes. We just don’t think it’s necessary to leave a tip.
If you agree and want to use the tax system to your advantage, this guide will give you the most important factors you need to look at — starting right now — all while playing by the rules 100%.
Click here to get your free 2022 Pocket Tax Guide for Small Business Owners now.
That’s it for this week.
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The Builders at Wealth Factory
