Renting a Residence to a Related Business Under IRC §280A(g): What the Rule Does—and Does Not Do

IRC §280A(g), sometimes marketed as the “Augusta Rule,” applies when a dwelling unit used by the taxpayer as a residence is rented for fewer than 15 days during the tax year. When the requirements are met, the rental income generally is excluded from gross income and expenses attributable to that rental use generally are not deducted.

The Limit Is Fewer Than 15 Rental Days

The residence must be rented for 14 days or fewer during the year. The count includes rental days to all renters, not merely days rented to a related business. Personal-use days do not count as rental days, but the dwelling must otherwise qualify as a residence under the applicable rules.

When rental use reaches 15 days, the Section 280A(g) exclusion no longer applies for that year. Rental income generally becomes reportable, and the taxpayer must analyze the ordinary rental-income and expense-allocation rules rather than assuming the full gross rent is taxable without any permitted expenses.

The Business Deduction Is a Separate Question

Section 280A(g) governs the homeowner's income treatment. It does not automatically create a deduction for the payer. A related corporation, partnership, or other separate taxpayer generally must establish that the rent was an ordinary and necessary business expense under Section 162, that the amount was reasonable, and that the business actually used the property for the stated purpose.

A sole proprietor or disregarded single-member LLC generally cannot create a two-party rental transaction by paying the same taxpayer. A separate corporation or partnership may enter into a genuine rental transaction with an owner, but entity separation alone does not establish deductibility.

Fair Market Rent Must Reflect the Actual Space and Use

The daily rate should be supported by comparable local space with similar size, location, privacy, amenities, capacity, and services. A hotel ballroom is not necessarily comparable to a dining room, and a full-house event rental is not necessarily comparable to use of one office.

An excessive payment may be disallowed or recharacterized as compensation, a distribution, a constructive dividend, or another payment depending on the entity and facts. Rent should not be used to avoid reasonable-compensation rules or to extract cash without a genuine rental purpose.

Documentation Should Be Created Before and During the Use

A written agreement is not the statutory source of the exclusion, but it is strong evidence of the dates, area rented, rate, permitted use, payment terms, and responsibilities. Contemporaneous agendas, attendance records, minutes, invoices, payment records, photographs when appropriate, and local-rate support help establish what actually occurred.

The business purpose should be real and proportionate to the cost. Routine owner work performed at home does not become a deductible event rental merely because it is labeled a meeting.

Personal and Local-Law Issues Still Matter

Insurance, mortgage restrictions, leases, homeowners' association rules, zoning, occupancy limits, permits, and state or local tax rules may affect whether the use is allowed or creates other obligations. Federal income-tax treatment does not override those requirements.

The Practical Takeaway

A defensible related-business rental begins with an actual business need, supportable market rent, a complete annual day count, separate payment, and records created at the time of use. The exclusion should be evaluated separately from the payer's deduction.

This information addresses general federal income-tax rules. It is educational and is not legal advice, a state or local tax conclusion, or a determination that a particular related-party payment is deductible or excludable.