Ahh...
Spring
Pollen
Taxes
And The Masters
Some of these notable Spring attributes actually pair together more nicely than you may think in a little-known exemption in the tax code that many refer to as "The Augusta Rule."
Internal Revenue Code Section 280A(g), also known as the Augusta Rule, allows homeowners to rent out their home for up to 14 days per year without having to report the rental income on their individual tax return. In the 1970s, Augusta, Georgia residents lobbied for this exemption and succeeded. Once per year, over 200,000 people come to Augusta for The Masters, and those people need a place to stay. The area can't support the amount of hotel rooms needed for Masters week year-round; therefore, this creates a huge opportunity for homeowners to rent out their homes. The residents lobbied to be able to rent out their homes for a short period of time without having to be viewed by the IRS as full-fledged rental businesses. Their determination paid off and now many others can benefit as well.
The Opportunity for Business Owners
When businesses rent space for business purposes, it is a part of their business operations and therefore, a deductible business expense. Businesses may rent space for meetings, meals, planning retreats, and other events; therefore, why not rent your personal or second residence to your business?
There are a few important things to consider:
- Legitimate business use: Make sure you're hosting a legitimate business meeting or event at your home. 14 days of "meetings" between an business owner and their spouse as a partner or client won't fly with the IRS. Document the exact days and purpose for each event.
- Maximum of 14 days: It could be 14 one-day events or 1 two-week rental, but most importantly, limit your rental to a total of 14 days.
- Reasonable rental rate: Applying a reasonable rental rate is important; otherwise, the IRS will disallow all or part of the deduction/income. Look at other options in your market and apply a rate that is reasonable, given other facilities or homes you could rent. Document this market research and other options you considered.
- Local restrictions: confirm with your local municipality or jurisdiction to confirm there are no restrictions around short-term rentals.
The Opportunity for Homeowners
This opportunity isn't just limited to Augusta residents. Homeowners across the US and those who do not own a business can also benefit from this tax code, just as Augusta residents do on an annual basis. Do you have a home that might be desirable for a business owner to rent for an event? Is there a big event coming to your area that might draw a demand for accommodations and open the opportunity for you to rent out your home?
The Result
Tax-free income on the personal tax return and a deductible business expense on the business tax return.
Those on the leaderboard this Sunday aren't the only winners in Augusta this weekend. This tax code can give local homeowners a big, tax-free win as well. Thanks to the Augusta Rule, you could win too.
Material discussed is meant for general informational purposes only and is not to be construed as tax, legal, or investment advice. Although the information has been gathered from sources believed to be reliable, please note that individual situations can vary. Therefore, the information should be relied upon only when coordinated with individual professional advice. Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. All investments contain risk and may lose value. Past performance is not a guarantee of future results. 6928365.2 (Exp. 3/28)