You've probably seen the video. Someone in a very nice kitchen leans into the camera: "Your business can pay you to use your house, and that money is completely tax-free. The rich have been doing this for years!"
That's the Augusta rule, and it's real. What the video skips is that it doesn't work for everyone. Some of the people it does work for are using it in a way that won't survive an audit.
So let's cover what the 60-second version leaves out: who can actually use it, how it fits with a home office deduction, and how to avoid becoming a Tax Court cautionary tale.
What the reels get right
The Augusta rule is a real part of the tax code: Section 280A(g). If you live in your home and rent it out for fewer than 15 days in a year, the rent isn't taxable income. You can't deduct rental expenses against it, but that's a small price for tax-free money.
It's named after Augusta, Georgia, where homeowners rent their houses to golf fans during the Masters each April. Business owners eventually noticed the rule doesn't care who the renter is. If your company rents your living room for a legitimate meeting, the company deducts the rent and you keep it tax-free.
So far, the reels are right. Now for the part that doesn't fit in 60 seconds.
Who it doesn't work for
The Augusta rule only works when someone else pays the rent. Your business has to be a separate taxpayer from you, and a lot of small businesses aren't.
If you're a sole proprietor, you and your business are the same taxpayer. Paying yourself rent is like moving a $20 bill from your left pocket to your right and calling it tax-free income. There's nobody left to take the deduction.
"But I have an LLC!" Here's the twist: an LLC is a legal structure, not a tax classification. Whether the Augusta rule works depends on how your LLC is taxed:
Single-member LLC, no election (disregarded): Augusta rule, no, because you and the LLC are one taxpayer. Home office, yes, deducted on Schedule C.
Multi-member LLC, no election (partnership): Augusta rule, yes, because the partnership pays you rent. Home office, yes, through reimbursement or unreimbursed partnership expenses.
LLC with an S corporation election: Augusta rule, yes, because the corporation pays you rent. Home office, yes, through accountable plan reimbursement.
LLC with a C corporation election: Same as an S corp. Both work.
A single-member LLC with no election is taxed exactly like a sole proprietor, so it hits the same left-pocket, right-pocket problem. This is the group most likely to see the reel, try it, and get nothing for it.
If you can only pick one, pick the home office. For a sole proprietor or single-member LLC, it's the one that's actually available. It lowers your Schedule C profit, which cuts self-employment tax as well as income tax. (Our Home Office Deduction guide walks through the details.)
Still want the Augusta rule? Your LLC would need to elect S corporation status. That brings payroll, a reasonable salary, and an extra tax return, so make that switch because the overall numbers work, not for one trick from a video.
Already have a home office? You can usually do both
Good news for owners who qualify: the home office deduction and the Augusta rule can live in the same house. They just can't share a room.
Home office: a specific space used regularly and only for business, every workday. You deduct the costs of that space, either $5 per square foot up to 300 square feet ($1,500) on the simplified method or a share of actual costs.
Augusta rule: renting your home, or part of it, for a few dated events, fewer than 15 days a year. Your business deducts fair daily rent, and you don't pay tax on it.
Three rules keep the peace:
Different square footage. Your office is already business space every day. Rent the living room, dining room, or backyard for events, and leave the office out of the rental agreement and the rate.
Corporate owners get the office through reimbursement. If you own an S or C corp and work in it, you're its employee, and employees can't deduct a home office on their own return. That repeal is now permanent. Instead, the company reimburses the office's share of home costs through an accountable plan: deductible for the company, tax-free for you.
Don't rent the office to your own company. Under §280A(c)(6), renting part of your home to your employer while you work there as its employee wipes out the deductions for that space. The rent can still be taxable, so you'd lose on both ends.
Partners take a similar route: reimbursement from the partnership, or unreimbursed partnership expenses on their own return. That second option needs a partnership agreement that requires partners to pay those costs and says the partnership won't reimburse them.
The cautionary tale: Sinopoli
The reels love to say "the IRS can't touch this." Three business owners learned otherwise in Sinopoli v. Commissioner (T.C. Memo. 2023-105).
Their S corporation deducted about $290,900 over less than three years for meetings in the owners' homes, eventually paying each owner $3,000 a month. When the IRS asked for proof, there were no minutes, no agendas, and no calendars. The owners could show one meeting a month, not the three they claimed.
The court checked what local meeting space actually rented for, about $500 a day, and said even that was generous. It allowed about $500 per proven meeting, tossed the rest, and called the setup a scheme to move company profits to the owners as rent.
The lesson isn't that the Augusta rule is a trap. It's that "tax-free to you" doesn't mean any amount is deductible to your company. The rent has to be fair, and the meetings have to be real.
What counts as a real event? Board or shareholder meetings, planning sessions, employee training, and the staff holiday party all fit. A "client appreciation party" is trickier, because entertainment is generally nondeductible, and so is the rent for it. And your kid's birthday party is not a business event, no matter how much networking happens at the bounce house.
Counting to 14 is harder than it sounds
The limit is fewer than 15 rental days per home per year, counting every renter. Rent your place on Airbnb over Labor Day weekend, and those nights count too. Hit day 15 and the exclusion vanishes: that year's rent becomes taxable.
It has to be a home you live in. Personal use has to top 14 days or 10% of the rented days, whichever is more. Your primary home clears this easily.
Each home gets its own count. A vacation home you also use has its own 14 days.
Keep a running log, and aim for 12 days or fewer so one surprise booking doesn't sink the year.
What doing it right looks like
Maria owns a consulting firm taxed as an S corporation. She works from a 200 sq ft office in her 3,000 sq ft home. She hosts six company events a year in her living and dining rooms: four quarterly planning sessions, one training day, and the staff holiday party.
Home office (about 7% of the home): the S corp reimburses its share of home costs through an accountable plan. $2,400.
Six event days, living and dining rooms only: the S corp pays rent at $700 a day. $4,200.
Total deducted by the S corp: $6,600.
Taxable to Maria: $0.
At a 35% combined federal and state rate, that's about $2,310 back in Maria's pocket. (Numbers are illustrative.)
What makes it hold up: her office stays out of the event rental. The $700 rate comes from three quotes for nearby hotel meeting rooms, which ran $650 to $800 a day. Every event has an agenda, a sign-in sheet, and notes on what got decided.
Your paper trail
If the IRS comes knocking, this is what you hand over:
A signed rental agreement between you and the business
Two or three quotes for comparable local meeting space
A description of the rooms rented, with the office left out
For each event: the date, agenda, attendees, and notes
An invoice from you, and payment from the business bank account
A log of every rental day for the year
For corporate owners: the accountable plan and the office expense reports
The bottom line
The Augusta rule is real, and for the right business it's a great tool. It only works if your business is a separate taxpayer, the rent is fair, and the events would make sense to someone who isn't trying to save taxes.
Sole proprietors and single-member LLCs: the home office deduction is probably your play for now. S corps, partnerships, and C corps: you can often use both.
Let's find the right strategy for your business
Social media gives everyone the same advice, but your business isn't everyone's business. The right mix depends on how you're set up, how you use your home, and what your numbers look like.
That's where we come in. At Bottala Tax & Advisory, we'll look at your entity, your home office, and your plans for the year, and tell you straight:
Whether the Augusta rule fits your business, or is one to scroll past
How to get the most out of your home office deduction
Whether an S corporation election would actually pay off for you
How to set it all up so it holds up if the IRS ever asks
Before you book your living room for a "board meeting," let's make sure it's the right move. Year-end is a great time to plan for what's left of this year and for next. Book a strategy session, call (626) 244-8895, or email Info@Bottalacpa.com.
This article is general information, not tax advice for your specific situation.