The Augusta rule, and the records that make it hold up

How it works

The tax code has a special rule for a home you live in that's rented out for fewer than 15 days in the year: you don't report the rent, and you don't deduct rental expenses. It's called the Augusta rule after the homeowners near Augusta National who rent their houses out during the Masters golf tournament each year.

For a business owner it works like this. Your corporation rents your home for business meetings. The corporation deducts the rent as a business expense, which lowers the profit that passes through to your return. You receive the rent, and because the home was rented for fewer than 15 days, it isn't income to you. The saving is the rent times your tax rate.

Who can use it

• The business has to be a separate taxpayer — an S corporation, C corporation or partnership. A sole proprietor, or a single-owner LLC taxed as one, can't rent to themselves; there's no second party to deduct the rent.
• It has to be your home — a house, apartment or vacation home you use as a residence.
• Fewer than 15 days of rental in the year. Every day the home is rented counts — a week of short-term rental to strangers uses up the same days.

What makes the deduction hold up

The rent is excluded from your income by the rule above. The corporation's deduction is a separate question: like any business expense, it has to be ordinary, necessary and reasonable. That's where these arrangements fail.

• A real business meeting. A board meeting, a planning session, a team training, a client event. A family dinner with a business conversation isn't one.
• A fair day rate. What a local venue would charge for comparable space for the same length of time — get two or three quotes and keep them. A hotel ballroom rate for your living room isn't comparable.
• Records of each meeting. The date, who attended, an agenda, and minutes or notes of what was decided.
• Paid like rent. A short rental agreement or invoice, and payment from the corporation's account to you after each meeting.

What happened in the Tax Court

In Sinopoli v. Commissioner (2023), an S corporation deducted more than $290,000 of rent paid to its shareholders for meetings held in their homes. The Tax Court allowed about $500 per meeting, and only for the meetings the owners could document. It found the rent they'd charged wasn't supported, and that there were no minutes, agendas or calendars for most of the meetings claimed. The rule itself was never the problem — the rate and the records were.

The arithmetic

The fictional business in our sample report, Harbor & Pine, holds eight meeting days a year at the owner's home, at a $600 day rate backed by venue quotes: $4,800 of rent, about $1,440 a year saved at a 30% combined rate. In the report it's marked Documentation missing — the quotes and minutes for most meetings aren't on file yet, so it isn't counted as done.

Mistakes that sink it

• Charging a rate no venue nearby would — or pricing the whole house when the meeting used one room.
• Claiming a meeting every month with nothing written down about any of them.
• Going over 14 days, or forgetting that other rentals of the home count toward the limit.
• Renting your home office to the corporation — that's a different rule, and it denies the deduction.
• Using it as a sole proprietor, where there's no separate business to pay you.

When it doesn't fit

• There are no real meetings to hold at home.
• You already rent the home out for two weeks or more a year.
• You're a sole proprietor.

Whether it fits your business, and what rate is fair where you live, is a question for your CPA or tax attorney.