The Augusta Tax Rule: Tax-Free Income for Short Term Property Rentals

February 23, 2022
The Augusta Tax Rule: Tax-Free Income for Short Term Property Rentals
 A concept of the Augusta Tax Rule - male homeowner giving the keys to a businessman who will rent his property for a short-period of time.

Realtor hand giving keys to new house owner


The Augusta Tax Rule, known to the IRS as Section 280A, is a very beneficial rule for individuals who rent out their homes on a short-term basis. Under this rule, there is no need to report the income to the IRS. This is so long as the home is rented for 14 days or less in the calendar year. This rule applies to any US taxpayer who owns their home and can be used at any time without declaration.


Rules to Keep in Mind


To be compliant with the Augusta Tax Rule, there are some stipulations that must be followed;

* The home or property must not be a primary place of business. The property does not need to be the primary residence, but it has to be for personal use only. It is important to note that the property cannot be the primary place of business. However, you can have it rented for business use. This creates a potentially beneficial loophole that you can cover later.

* The tax code states that you must list the rental for a reasonable rate for that time and location. Essentially, a quick scan of the rental market is necessary. This ensures that the property is not being listed significantly higher than a comparable option. This rule is a bit arbitrary, so use common sense when setting the rental rate.

* As mentioned above, the 14-day rental period is cumulative for the calendar year, even if the dates are not consecutive. Be sure to keep track of that daily income is received to ensure complicity with the taxation rule.

The Augusta Tax Rule does not shield individuals from local laws or regulations. Be sure to check for any such restrictions that may apply to your property before renting.


How to Use the Augusta Tax Rule


Many people will use online apps and websites to list their property for rental. This is due to the ease of use and exposure to potential customers. Fourteen days can add up quickly, so identifying the supply and demand of your property’s market can be beneficial to ensure maximum profit

Another popular use of the Augusta Tax Rule is for business owners to rent temporary meeting space. If a business rents the home, the business ledger will show an expense for the rental. However, the personal owner does not need to report the income and can keep the rental fee for the property tax-free. This is especially beneficial if the same individual owns the home and business, as it can act as a tax shelter for the company.

For advice on how the Augusta Tax Rule can work for you, contact us to speak with a Certified Public Accountant about your financial situation. 

Foster Financial CPA prides itself on providing professional, quality financial advice and is available for consultation to begin your journey to a healthier financial future.