The Augusta Rule (Section 280A(g))

How it works

Section 280A(g) says that if a dwelling unit is used by the taxpayer as a residence and is actually rented for less than 15 days during the tax year, the owner includes none of that rent in gross income. The rental deductions that would normally follow are given up in exchange, though the deductions a homeowner gets regardless of business use, such as mortgage interest and property taxes, are unaffected.

On its own that is just an exclusion. What makes it a planning position is the other side of the transaction. When a business rents space from its owner, the business deducts the rent as an ordinary and necessary expense under Section 162(a). So the same dollars are deducted by the entity and excluded by the owner, provided the rent is a reasonable amount and the use is genuinely for business.

The nickname comes from Augusta, Georgia, where homeowners historically rented their houses to Masters Tournament visitors for under two weeks without reporting the income.

What this is worth in Florida

Less than people expect, and I would rather say so plainly. Florida has no individual income tax and does not tax pass-through income at the personal level, so the half of this that excludes rent from the owner's return changes nothing here. Rent received by a Florida resident was already free of Florida income tax. The benefit is federal, and it comes from the deduction at the business level. If someone is selling you the Florida angle on this one, they are selling something that does not exist.

Who this applies to

This needs two separate taxpayers, and that requirement does most of the filtering.

• The property. A dwelling unit the owner uses as a residence: a house, apartment, condominium, mobile home, or boat, along with structures appurtenant to it. A home the owner actually lives in clears the personal-use test comfortably.
• The payer. A separate entity that can deduct rent. An S corporation, a C corporation, or a partnership all work, because each is a taxpayer distinct from the owner receiving the rent.
• Who this does not work for. A sole proprietor, or a single-member LLC treated as disregarded, is the same taxpayer as its owner. Paying rent to yourself produces a deduction and income on one return, and the position collapses. If you are filing on Schedule C, this is not available to you until the entity structure changes.

Whether an entity election makes sense for other reasons is a separate question, and one I look at in my Florida S-corp guide.

What it requires

Four conditions have to hold at once. Missing any one of them takes the position down.

• Fourteen rental days or fewer for the year. The statute is written as less than 15 days, which makes 14 the ceiling. This is a cliff, not a taper. Cross to 15 and the exclusion is gone for the whole year, so the rent for all of the days becomes reportable, not merely the excess.
• Rent at a reasonable amount. Reasonableness is built into the words ordinary and necessary in Section 162(a). The test is what an unrelated party would charge for comparable space, which means the rate has to be anchored to something outside the transaction rather than derived by the person benefiting from it.
• A real business purpose for each day. Board and shareholder meetings, annual planning sessions, and recorded staff training are the ordinary examples. Meeting the day count does not save a rental that had no business reason behind it.
• Rent that is actually paid. The business has to really transfer the money to the owner and record it. A journal entry with no payment behind it is not a rent expense.

What you need to document

Substantiation is the single biggest determinant of whether this survives an examination, which is why the file matters as much as the arithmetic. It has to be assembled as things happen rather than reconstructed afterward.

Independent support for the rate

Written quotes from comparable commercial venues, or an independent appraisal of the rental value. This is the piece most often missing, and it is the piece that decides the reasonableness question.

A written rental agreement

Between the owner as landlord and the business as tenant, describing the space, the dates, the rate, and the business use.

Evidence the business use happened

An agenda and minutes for each event, showing what the meeting was and what occurred.

Proof of payment and a day-count log

Bank records for the rent, and a running count of rental days so the 14-day ceiling is demonstrable rather than asserted.

Where it goes wrong

This position is treated as aggressive in practice, and it is worth being precise about why. The statute is not shaky. What draws examination is that the rent amount and the business purpose are routinely overstated, and the attack comes through Section 162(a) reasonableness and substantiation rather than through the exclusion.

What the Tax Court did in Sinopoli

Sinopoli v. Commissioner, T.C. Memo. 2023-105 is the case to read, because it shows the failure mode rather than describing it. Three S corporation owners deducted roughly $290,900 of rent their company paid to use shareholders' homes for monthly meetings. The Tax Court allowed $16,500 and disallowed approximately $274,000.

The allowed amount was not a compromise. It was built from the examining agent's own evidence that comparable local meeting space rented for about $500 per day, multiplied by the number of meetings the taxpayers could actually substantiate. Two things sank the rest: the rate rested on a shareholder's own research rather than an independent appraisal or third-party quotes, and the documentation of what happened at the meetings was inadequate. The court restated that reasonableness is inherent in the phrase ordinary and necessary in Section 162.

The recurring mistakes

• No independent basis for the rent. A self-generated estimate is the weakest possible support, and it is what lost Sinopoli.
• A rate set to maximize the deduction. Whatever exceeds a defensible market rate is disallowed as unreasonable.
• Meetings with nothing behind them. No agenda, no minutes, no evidence anything business-related took place.
• Losing count of the days. Fifteen days forfeits the exclusion entirely.
• Running it through a disregarded entity, where there is no separate payer at all.
• Accuracy-related penalty exposure under Section 6662 on a disallowed amount where the position was unreasonable and unsupported. No such penalty was asserted in Sinopoli, but that was the examiner's choice in that case rather than a rule.

A situation where this comes up

The version I see most often is an owner-managed S corporation that genuinely does hold its planning and board sessions somewhere, and has simply been holding them at the owner's house because that is convenient. The business is already meeting; nothing about the operation has to change for this to be available.

What usually has to change is the paperwork. There is often no lease, no independent read on what comparable space costs, and no minutes, because none of that felt necessary when the meetings were informal. That is the work, and it has to happen before and during the year rather than at filing time, since the entire question is what the contemporaneous record shows.

The version that worries me is the one where the meeting exists because the deduction was wanted. That ordering is visible from the outside, and it is the fact pattern that produces a Sinopoli outcome.