*this is a transcript taken from our Tax Tip Tuesday videos. You can watch the whole thing on Youtube here.
Hey everyone, welcome to another “Tax Tip Tuesday.” I’m Alexis Gallati of Cerebral Tax Advisors, and today we’re gonna talk about the Augusta rule.
Now, I’m not sure if all of you know what the Augusta rule is, but basically it’s a really neat tax strategy that allows you to earn tax-free income. Now, the Augusta rule actually came from the golf tournament that they play in Augusta. And because, what basically people did was they rented out their homes for that two week period, and basically, they don’t have to pay any tax for the income earned on that rental.
Now, this isn’t just for people who are around big golf tournaments or other, um, sporting events, but this can actually be used for those who own a business.
So, the IRS revenue code states if the dwelling unit is used during the taxable year by the tax-payer as a resident, and such dwelling unit is actually rented for less than 15 days during the taxable year, then the income derived from such use for the taxable year shall not be included in gross income of such taxpayer.
So, plain English, that means that a taxpayer can rent out his or her residence to someone else, including a corporation, for 14 days or less during a calendar year, and not report that income received from the rental.
So, basically, you receive income for renting your home, and you don’t have to pay income tax on it. It’s pretty awesome!
So, thinking about it from a person who owns their own corporation, like an S-Corp or a C-Corp, how can we go and, um, basically, rent our personal home out to the corporation? Well, for example, when your part of a corporation, you have to actually do at least two meetings a year. That’s the shareholders meeting and a directors meeting.
So there are two instances right there, and you can also have other special meetings as well, and the only things that you have to make sure is that one, that you don’t violate the less than 15 day rule, that the rent that’s paid is reasonable, so you actually have to go and say, okay, well, if we were to rent from lets say like a hotel, or other meeting space, how much would that cost? You know, is it equivalent to the space that we’re renting from the home, et cetera.
Basically you have to make sure to document what’s reasonable. So there obviously, you know, things that you have to document properly in order to take this but, if you’re able to do it properly then you could end up going and saving quite a bit of money and also getting a deduction for your corporation as well. So I hope you found this tip helpful. If you did, please thumbs up, like it, share it with your friends and colleagues, and please feel free to follow us on Facebook, LinkedIn, Twitter, our YouTube page, or channel, that has a whole bunch of other great tax tips.