This is one strategy we often see clients overlook that can provide a good amount of tax savings. Do you use your home for business events such as shareholder meetings, team retreats, client meetings, employee meetings, etc? If so then, this is one you definitely want to be taking advantage of!
What Is The 14 Day Home Rental Strategy (aka The Augusta Rule)?
Tax Code: 280A(g): Notwithstanding any other provision of this section or section 183, 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 deduction otherwise allowable under this chapter because of the rental use of such dwelling unit shall be allowed, and
- the income derived from such use for the taxable year shall not be included in the gross income of such taxpayer under section 61.
- Based on tax code, if you rented your home for 14 days or less you cannot write off the expenses attributed for that rental use BUT you also do not have to include that as rental income either.
- Origins: Folks were renting out their homes for a week for short term events (golf tournaments, superbowl, etc) but they were stuck paying taxes on that. A short term rental like that is not an actual “rental property” which is when this law was put in place.
- The Details
- You can rent your home to your business.
- Must be 14 days or less.
- Must be a personal residence.
- Your business must be a separate legal entity (a sole prop is the same as you and you cannot rent the house to yourself).
What Do I Need To Do To Implement The 14 Day Home Rental Strategy?
You need to do more than just write yourself a check and move on.
- Need to have a qualifying occasion or reason for the rental. (Examples: shareholder meetings, retreats, client events, etc.)
- The rental rate must be a fair market value.
- If more than $600 for the year, you need to have business issue 1099-MISC to yourself. You can then zero it out on your Schedule E.
- Note: This has no effect on the home office.
As you can tell this is a great strategy that you can implement to get a business deduction and pay no income taxes on that income received.
Of course there are some key things that you need to do to ensure that this is done right and you are clear of any risk during an audit.
As part of our Tax Minimization Program we discuss this strategy as well as a full implementation guide, sample lease agreement, spreadsheet for recording activity, etc. Be sure to sign-up for our program if you want access to that information.
If you don’t have an accounting or tax advisor (or you need assistance with anything discussed), click here to book your complimentary strategy session with JETRO.