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Last reviewed: October 3, 2026
The Augusta rule is Internal Revenue Code §280A(g): if you rent out a home you live in for 14 days or fewer during the year, the rent is excluded from your income entirely. When the tenant is your own S corporation, C corporation, or partnership, the business also deducts that rent as an ordinary business expense, so for 2026 up to 14 days of fair-market rent can move from your company to you with no income tax on either side. The deduction only survives an audit when the meetings are real, the daily rate matches what local venues charge, and every rental day falls on or before December 31, 2026.
Key takeaways:
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The Augusta rule is the nickname for IRC §280A(g), a provision added by the Tax Reform Act of 1976 that excludes short-term rent on a personal residence from gross income. The statute reads: if a dwelling unit is used during the taxable year by the taxpayer as a residence "and such dwelling unit is actually rented for less than 15 days during the taxable year," then no rental deduction is allowed and "the income derived from such use for the taxable year shall not be included in the gross income of such taxpayer" (26 U.S.C. §280A(g)). The name comes from Augusta, Georgia, where homeowners rent their houses to visitors during Masters Tournament week.
IRS Publication 527 turns the statute into a filing instruction. If you use a dwelling unit as a home and rent it less than 15 days during the year, "its primary function isn't considered to be rental and it shouldn't be reported on Schedule E," and you aren't required to report the rental income or expenses (Pub. 527 (2025), chapter 5). The same rule covers a family that rents its house for a big local event, which our Airbnb host tax guide walks through.
Business owners rent their own home to their own company for meetings instead, and the company deducts the rent under IRC §162(a)(3), which covers "rentals or other payments required to be made as a condition to the continued use or possession" of business property (26 U.S.C. §162). One payment creates a deduction on one side and an exclusion on the other.
An S corporation pays rent to its shareholder for dated business use of the shareholder's home, deducts the rent, and passes a smaller profit through to the owner's Schedule K-1. The owner receives the rent in cash and leaves it off the return under §280A(g). The rent is not wages, so it carries no payroll tax, and it does not count toward the reasonable salary an S corp owner must take. In practice: a written rental agreement, a daily rate set from local quotes, a real meeting on each date, an invoice per date, and a transfer from the business account to yours.
The tax value depends on who would otherwise pay tax on that money. In an S corporation, every dollar of rent is a dollar that no longer flows through to your K-1, so the saving is roughly your marginal rate times the rent. There is one wrinkle: if you claim the 20% qualified business income deduction under IRC §199A on the S corp's profit, lowering that profit also lowers the QBI deduction by 20% of the rent. The net federal saving is closer to 80% of the headline figure.
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What is the Augusta rule worth to you?
Enter how the business is taxed, the days it uses your home, and a daily rent you can back with local quotes.
Count every rental day of this home in 2026, including Airbnb.
Middle of 2–3 local quotes for a comparable meeting space.
Rent you receive tax-free
$8,000
10 days × $800 per day, excluded from your gross income under §280A(g) and deductible by the business under §162.
The rent is not wages: it does not count toward your reasonable salary and carries no payroll tax on either side.
Federal only, 2026 brackets. Assumes you own 100% of an S corporation (a partnership splits the deduction by ownership), the home counts as your residence, and no other rentals of the same home this year. State tax adds to the saving where the state follows §280A(g).
Model your full S corp taxesWorked example. Tamsin owns 100% of a brand design studio in Austin, Texas, taxed as an S corporation, and sits in the 24% federal bracket. Texas has no personal income tax, so the federal numbers are the whole story. In 2026 she hosts four quarterly planning days for her team of six, three client strategy workshops, a year-end review with her accountant, and two recruiting days: 10 dated uses of her living and dining rooms. She collects three quotes for a room that seats twelve with a screen and kitchen access: $650 from a coworking space, $800 from a hotel, and $950 from an event venue. She sets the rate at the middle quote.
| Step | Amount |
|---|---|
| Rental days in 2026 | 10 |
| Daily rent (middle of three quotes) | $800 |
| Rent the S corp pays Tamsin | $8,000 |
| S corp deduction under §162 (K-1 income falls by) | $8,000 |
| Federal tax saved at 24% | $1,920 |
| Less: QBI deduction lost (20% × $8,000 × 24%) | −$384 |
| Net federal saving with QBI | $1,536 |
The $8,000 reaches Tamsin tax-free under §280A(g). If her studio were a C corporation instead, the company would save 21% × $8,000 = $1,680 of corporate tax, and she would receive the $8,000 without the dividend tax that a distribution of the same cash would trigger.
Anyone who rents out a home they live in can exclude up to 14 days of rent, but the business version only pays off when the tenant is a separate taxpayer from you. A disregarded entity and its owner file one return, so rent paid from one pocket to the other creates no deduction.
| Who pays the rent | Does the Augusta rule save tax? | Why |
|---|---|---|
| S corporation (including an LLC that filed Form 2553) | ✅ Yes | Deduction reduces K-1 income; rent excluded for the owner |
| C corporation | ✅ Yes | Deduction at the 21% corporate rate; rent excluded for the owner. Excess rent risks dividend treatment |
| Partnership or multi-member LLC | ✅ Yes, shared | Rent is a payment to a partner outside the partner's capacity as partner (IRC §707(a)); the deduction is split among all partners by ownership |
| Sole proprietorship | ❌ No | Same taxpayer on both sides; no deduction |
| Single-member LLC taxed as disregarded | ❌ No | Same as a sole proprietorship unless it elects S or C corp status |
A single-member LLC that converts to S corp taxation becomes eligible from the election's effective date. In a partnership the rent is yours alone while the deduction is shared: a 50% partner who receives $8,000 of rent lowers their own share of partnership income by $4,000.
The Augusta rule covers a home "actually rented for less than 15 days during the taxable year," so 14 rental days is the maximum. Three details decide whether you stay under it.
Every renter counts. The 14 days apply to the dwelling unit, not to your business. If you list the house on Airbnb for a 5-night stay in June, your company has 9 days left for 2026.
Each home is tested separately. The statute runs dwelling unit by dwelling unit, and IRC §280A(f)(1) defines a dwelling unit to include a house, apartment, condominium, mobile home, or boat. A lake cabin that you use personally enough to count as a residence has its own 14 days.
The home must be a residence that year. Under IRC §280A(d)(1), a unit is used as a residence when your personal use exceeds the greater of 14 days or 10% of the days it is rented at a fair price. Your primary home passes automatically. A pure rental property you never stay in does not qualify at all.
Day 15 does not make just one day taxable. Once a residence is rented 15 days or more, Publication 527 requires you to "include all your rental income in your income" and split expenses between rental and personal use. If Tamsin's studio booked 15 days instead of 10, all $12,000 of rent would become reportable rental income on Schedule E, offset only by the share of home expenses allocated to rental days. The business deduction survives, but the tax saving disappears.
You can charge a fair rental price, which Publication 527 defines as "the amount of rent that a person who isn't related to you would be willing to pay." For the business version, that means what your company would pay a hotel, coworking space, or event venue for comparable space, headcount, and hours, not what a stranger would pay for your whole house on a wedding weekend.
The Tax Court has priced this twice, both times far below the rates the owners chose:
| Case | What the owners charged | What the court allowed | Penalty |
|---|---|---|---|
| Sinopoli v. Commissioner, T.C. Memo. 2023-105 | $290,900 over less than three years from an S corp to its three shareholders, $3,000–$4,000 per meeting, rate built from $1.83 per square foot with no appraisal | $16,500 in total: $500 per meeting, one meeting a month, after the IRS agent found local meeting space rented for about $500 per full or half day | None determined by the IRS |
| Jadhav v. Commissioner, T.C. Memo. 2023-140 | $308,000 over four years: four homes, 14 days each, at $2,000 and $2,500 per day taken from a planner's projection | $0. The court found the payments "unreasonable and something other than rent" | 20% accuracy-related penalty sustained |
In Sinopoli, the court called $500 a month "actually generous" because "only small portions of the residences were used for the meetings." In Jadhav, the planning firm had told the couple to back their rates with independent comparables and an appraiser; they "did not follow that advice," and with no evidence of fair rent in the record the court refused to estimate one.
In conversations with S corp owners while building Jupid, the Augusta rule is one of the strategies people ask about most, and the daily rate they bring usually comes from a sales webinar rather than from a local venue. Get the quotes first and let them set the number.
The Augusta rule needs records at two levels: proof that the rate is fair, and proof that each rental day happened for a business purpose. Sinopoli lost most of its deduction because the owners had no "minutes, agendas, or calendars." Keep this file for every year you use the rule:
Meetings with employees, clients, advisors, or co-owners are the easiest to defend. A "meeting" of one owner in their own living room is the hardest set of facts to defend, because a business has little reason to rent a room for a gathering of one.
You do not report qualifying Augusta rule rent as income: Publication 527 says it "shouldn't be reported on Schedule E." The paperwork problem is the information return. Under the December 2026 Instructions for Forms 1099-MISC and 1099-NEC, a business reports rents of $2,000 or more paid in 2026 in box 1 of Form 1099-MISC (IRS instructions). The threshold was $600 for payments made through 2025 and rose to $2,000 under the One Big Beautiful Bill Act. The instructions contain no exception for rent the recipient will exclude, and the 2026 forms are due to recipients by February 1, 2027, because January 31 falls on a Sunday.
The IRS has published no line for "§280A(g) rent," and its matching program compares every 1099 with your return, so a 1099-MISC with no matching entry can trigger a notice; our guide to what happens when a 1099 doesn't match your return covers how that works. The shareholders in Sinopoli reported the rent on Schedule E and then excluded it. Many practitioners instead enter it as other income on Schedule 1 with an offsetting negative entry labeled "IRC §280A(g) exclusion." The IRS prescribes neither method, so use the one your preparer's software supports and keep a short explanation with the return.
Home costs outside the rental stay where they always were. Publication 527 says mortgage interest, property taxes, and qualified casualty losses on the home are reported "as normally allowed on Schedule A." You cannot deduct cleaning, utilities, or depreciation for the rental days, because §280A(g)(1) bars any deduction "because of the rental use."
States that start from federal income generally carry the exclusion through; states with their own income rules may not. Three examples:
Where a state follows the rule, the saving grows by your state marginal rate; where it does not, the rent may be taxable at the state level. Check before counting on the full number.
The 14-day count and the exclusion both run by taxable year, so a meeting held on January 4, 2027 is a 2027 rental day. A cash-method S corporation deducts rent when it pays it, so the cleanest pattern is to hold each meeting and pay its invoice in the same calendar year. Plan the fourth-quarter dates now: a year-end planning session, an annual review with your advisor, or an employee holiday event hosted at home all fit, as long as each has its own agenda, invoice, and payment.
Resist prepaying next year's days. Publication 527 says advance rent is included "in the year you receive it regardless of the period covered," so a December 2026 transfer for 2027 meetings puts next year's rent into this year's receipts while the rental days fall in 2027.
Sinopoli turned on the small portion of each home actually used. A 4,000-square-foot house does not justify a venue rate when the meeting uses a dining table for eight.
Five nights of short-term rental plus ten meeting days is 15, and the exclusion is lost for every one of them.
A single $14,000 transfer with no dated invoices invites the question the IRS asked in both cases: which meetings, on which days, with whom?
Rent of $2,000 or more paid in 2026 belongs in box 1, and leaving a received form unexplained on your return invites a matching notice.
The Augusta rule lives or dies on a paper trail that ties each rental day to a payment. Jupid connects your business and personal bank accounts and categorizes transactions automatically with 95.9% accuracy, so the company's rent payments show up as rent expense instead of blending into owner distributions or transfers. Ask the AI accountant in WhatsApp or iMessage how much rent the company has paid you so far in 2026, or what another meeting day is worth at your bracket, and the answer comes back in the chat within seconds. Try Jupid.
This guide is for general educational purposes and does not constitute tax, legal, or accounting advice. The Augusta rule depends on facts: fair rental value, a genuine business purpose for each rental day, and your state's conformity. Last reviewed September 24, 2026. For advice specific to your situation, consult a qualified tax professional.
CEO & Co-Founder
Fintech CEO with 10+ years building accounting and financial technology products. Previously co-founded and scaled an AI-powered accounting platform to $30M revenue and 100K+ business users, achieving 30,000 customers per accountant through automation — recognized by CNBC as a top fintech company. Holds a Master's in Management Information Systems. At Jupid, he leads the development of AI-native bookkeeping, tax, and compliance tools designed for freelancers and small business owners.
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