If you operate your business through an S corporation, C corporation, or partnership, IRC Section 280A(g) allows a powerful planning opportunity.
You may rent your personal residence to your business for 14 days or fewer during the year.
When structured properly:
• The business deducts the rent as an ordinary and necessary business expense under IRC Section 162.
• You exclude the rental income from personal taxable income under IRC Section 280A(g).
The result can be significant.
Example:
If fair rental value is $1,500 per day and your corporation rents your home for 14 days:
Business deduction: $21,000
Personal taxable rental income: $0
That $21,000 reduces corporate income. If you operate an S corporation, the deduction passes through to you.
This is statutory. It is not aggressive positioning. The exclusion exists directly in the code.
But the benefit disappears if you mishandle structure or documentation.
Where the Strategy Fails
The rule looks simple. The execution is not.
There are several risk areas.
1. Employee Renting to Employer Rule
IRC Section 280A(c)(6) disallows certain rental deductions to employees renting to employers.
In this structure, that rule does not eliminate the benefit because you are not deducting expenses related to the home rental personally. The business claims the deduction. You exclude income under 280A(g).
Still, you must structure correctly.
2. Entertainment Disallowance
Entertainment is generally nondeductible under IRC Section 274.
If your corporation rents your home for entertainment purposes, the deduction may fail.
Limit rentals to:
• Board meetings
• Strategic planning sessions
• Staff training
• Employee holiday events that qualify under Section 274(e)(4)
Do not label the event as entertainment.
3. Fair Rental Value Must Be Defensible
This is the most common failure point.
Courts have denied deductions when taxpayers could not prove fair rental value.
You must establish reasonable market rent. Acceptable support may include:
• Comparable local rental rates
• Event venue pricing
• Third party estimates
• Written analysis
If you inflate the rent, the entire deduction can be disallowed.
Reasonableness is not optional.
4. Business Use Must Be Real
You must document that legitimate business activity occurred.
Minimum documentation:
• Meeting agenda
• Attendee list
• Business purpose
• Notes or minutes
The IRS may challenge deductions that lack evidence of substantive activity.
Substance matters.
5. Personal Expense Concerns
IRC Section 262 disallows personal, family, or living expenses.
To survive scrutiny:
• The corporation must approve the rental formally
• Payment must be made from corporate funds
• The event must have clear business purpose
If the rental looks personal, the deduction can be recharacterized.
What Proper Execution Looks Like
To preserve the benefit:
• Limit rentals to 14 days or fewer per calendar year
• Determine and document fair rental value before payment
• Execute a written rental agreement
• Issue payment from the business account
• Maintain business purpose documentation
• Keep meeting records
Do not skip steps.
The tax-free outcome exists because the statute permits it. The compliance burden exists because the IRS examines it.
Takeaways
When structured correctly:
• The corporation deducts the rent
• You exclude the rental income
• The income shift produces real tax savings
When structured incorrectly:
• The deduction can be denied in full
• Penalties may apply
• The IRS may treat the transaction as lacking economic substance
This is not complicated, but it is technical.
Before You Implement
Confirm:
• Is your business entity separate for federal tax purposes?
• Is the rental rate defensible in your local market?
• Are you within the 14 day limit?
• Is there clear business activity documentation?
If any of those answers are uncertain, review before executing.
Bottom Line
The Augusta Rule allows tax free rental income for 14 days or fewer.
The opportunity is legitimate.
The documentation is mandatory.
If you want a review of your structure before implementation, contact Brothers Tax for planning guidance.
Disclosure: Educational only. Not tax or legal advice.