The Augusta Rule strategy is a tax planning strategy that allows a client’s business to pay rent to themselves in order to hold business-related meetings in the client’s primary residence or vacation home. For example, if the client has a monthly meeting with the board of directors, they can pay a reasonable amount to rent their house and deduct these meetings. The client’s business gets to take the deduction on the business tax return, and they also do not have to report the income on their personal tax return. This strategy can be used for a maximum of 14 days in a year. If you go over the 14-day allowance, you will have to report the entire rental income and you will not receive the tax benefit.
The client will need to establish a written rental agreement between the business and the residence owner, and establish that the rental price is reasonable based on research and documentation of pricing on similar meeting room options in the local area. The amount deductible is limited to the rental space, and should not include any cost for meals.
It is also important to note that the business entity must be a separate legal entity, such as an S Corporation, C Corporation, Partnership, or LLC in order to take advantage of the strategy.