Originally created to allow residents of Augusta, GA to rent their residences tax-free during the annual Masters Tournament, the Augusta Rule (IRS Section 280A) allows you to rent out your home for 14 days or less per year without having to report the revenue as income.
A few caveats to qualify for this tax exemption: you must reside in the property at least 14 days of the year (includes primary and vacation homes), you may not deduct rental expenses on your tax return, and your rental income must be comparable to the local fair market rate. For example, you can rent your home to your business as a meeting space, but you can’t pay yourself $3,000 if comparable meeting space nearby rents for $1,000.
This tax loophole creates the opportunity for business owners to collect income for the rental of their property for legitimate business use, such as events and meeting space. In order to collect this tax-free income, it’s best to document it properly in the event of an audit. Create an invoice for the rental fee for your business, pay the fee with a trackable method from your business accounts, and create and keep records of the event or meeting, such as an agenda or minutes from the meeting. Track these rentals on your calendar, and be sure that you don’t exceed 14 days or all of the income for that year must be claimed and is then taxable.
Don’t miss out on this and other exemptions, deductions, and tax savings by handing your books to preparers without the knowledge to find lesser known ways to save you money at tax time. Contact Specialty Bookkeepers & Tax for expert tax advice and preparation.