How to Rent Your Home to Your Business—Tax-Free

07/21/2025

As a small business owner, you’re always on the lookout for legitimate strategies to reduce your tax burden. One of the most powerful—and surprisingly underutilized—methods is the Augusta Rule. Named after the city of Augusta, Georgia (home of the Masters golf tournament) this rule allows homeowners to rent out their homes for up to 14 days per year tax-free. But what does that mean for you as a business owner?

 

It could mean thousands in deductions for your business and tax-free income personally—a rare win-win in the tax world.

📜 What Is the Augusta Rule?

 

The Augusta Rule states:

“If a dwelling unit is used during the taxable year by the taxpayer as a residence and such dwelling unit is actually rented for fewer than 15 days during the taxable year, then the income derived from such use shall not be included in gross income...”

 

Translation? If you rent out your home for 14 days or fewer per year, you don’t have to report that rental income on your tax return. And here’s the exciting part: if your business is the one paying the rent, that expense is fully deductible to the business—if done correctly.

🏡 How It Works for Business Owners

 

Let’s say you own a business (LLC, S corp, or C corp), and you occasionally hold meetings, strategy sessions, client appreciation events, or team-building retreats in your home. You can rent your personal residence to your business for these activities, deduct the rental cost as a business expense, and not have to report the rental income personally (as long as it’s under 15 days/year).

 

Here’s how a typical scenario might look:

  • You host a monthly strategic planning meeting at your home.

  • You rent it to your business for 1 day each month (12 days total annually).

  • You determine that fair market value for such a rental is $1,000/day.

  • Your business pays you $12,000 over the year.

  • The business deducts the $12,000 as a legitimate expense.

  • You do not report the $12,000 as income.

Yes—tax-free personal income and a deductible business expense.

 

💼 Requirements to Do It Right

To take advantage of the Augusta Rule, you must follow some important steps and documentation requirements:

 

1. Establish a Legitimate Business Purpose

The meeting or event must be genuine and necessary for business operations. Examples include:

  • Annual shareholder meetings

  • Quarterly planning sessions

  • Client or vendor presentations

  • Staff development retreats

Document agendas, meeting notes, and attendee lists.

 

2. Determine Fair Market Rental Value

The IRS requires that the rental rate be reasonable and aligned with market value. You can:

  • Get written quotes from local hotels or venues.

  • Use short-term rental sites like Airbnb for comparisons.

  • Keep screenshots and documentation to justify the rate.

3. Use a Written Agreement

Have a short-term rental agreement between you (personally) and your business. Include:

  • Date and purpose of rental

  • Rental rate

  • Payment terms

4. Properly Record the Payment

The business must actually pay you, and it must be recorded properly in the books as rent expense. The payment should be made to your personal account—not commingled with business funds.

5. Do Not Issue a 1099

Since the rental income is exempt from reporting, you do not issue a Form 1099 to yourself for this income.

 

⚠️ Common Pitfalls to Avoid

  • Hosting too many days (more than 14 per year)

  • Charging above-market rates

  • Failing to document the business purpose

  • Mixing personal and business finances

  • Not using a written agreement

📈 Tax Savings in Action

Let’s assume you’re in a 37% federal tax bracket (plus 5% state):

  • Your business deducts $14,000 in rent (14 days × $1,000)

  • You save approximately $5,880 in federal and state taxes

  • You personally receive $14,000 tax-free

Now imagine doing this year after year.

🧠 Strategy Tip: Combine With Entity Planning

The Augusta Rule works best when your business is a separate legal entity (LLC, S corp, or C corp). If you’re a sole proprietor, it’s still possible, but you’ll want to be extra careful with documentation. Having a separate EIN, bank account, and accounting system helps establish the legitimacy of the transaction.

👩‍💼 Should You Use the Augusta Rule?

Absolutely—if you run a business from home and host business functions, this rule is a no-brainer. It allows you to:

  • Shift income from your business to your personal return (tax-free!)

  • Take legitimate deductions to lower your taxable income

  • Reimburse yourself for the value of using your home

Just make sure to follow the rules and keep your records in order.

🎯 Final Thoughts

The Augusta Rule is a legal and powerful tax planning tool that can save small business owners thousands of dollars each year—if used properly. As always, work with a qualified tax professional to make sure your specific situation is handled correctly.

 

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