The Augusta Rule (§ 280A(g)): Substantiation & Planning Notes

The "Augusta Rule" is shorthand for the § 280A(g) de minimis rental exclusion. For a closely held business renting the owner's residence, it's a clean income-shifting tool, but it lives or dies on substantiation.

The statute

Under § 280A(g), if a dwelling unit used by the taxpayer as a residence is rented for fewer than 15 days during the taxable year, the rental income is excluded from gross income and no deductions otherwise attributable to the rental are allowed. The 14-day ceiling is hard: a 15th rental day pulls the entire amount into gross income, not just the excess.

The structure

The owner's operating entity (commonly an S corporation) rents the residence for bona fide business use, board and strategy meetings, recorded content, or client events. The entity deducts the payment under § 162 as an ordinary and necessary business expense; the owner excludes the receipts under § 280A(g).

Substantiation: where it is won or lost

1. Fair rental value. Support the rate with comparable venue quotes for similar space and capacity. Avoid round numbers pulled from the air.
2. Business purpose. Keep contemporaneous minutes and agendas tying each rental day to a real business activity.
3. Paper trail. Issue an invoice from owner to entity and run an actual payment, not a journal entry at year end.
4. Day count. Fourteen days maximum across the year. Track it.

Reporting

The entity's payment is rent. Consider Form 1099-MISC (box 1) reporting for rent paid to the owner, and reconcile on the individual return so the § 280A(g) exclusion is applied cleanly and the amount is not double-counted.

Common exam failures

No individual-level deduction is available for the rented days. The recurring problems on exam are unreasonable rates and "meetings" that were never documented or never happened. Keep the rate defensible and the business purpose real and recorded.