Augusta Rule: Why $24,000 of Home Rent Saves $4,608, Not $5,760

The Augusta Rule lets your company pay you rent for using your home, up to 14 days a year, and you owe no income tax on the rent. The usual pitch puts $24,000 of rent at $5,760 of tax saved for an owner in the 24% bracket.

For most S corporation owners the real figure is smaller. The rent lowers the profit on your K-1, which shrinks your QBI deduction too, so $24,000 of rent saves $4,608 in our example below. That is still worth having.

The bigger risk is the deduction on the company side. The exclusion is in the Code and is not in doubt. Whether the company can deduct the rent depends on proof that the meetings happened and that the rate is what a venue would charge. Section 7 shows what happens without that proof.

1. What section 280A(g) says

The rule is one subsection of 26 U.S.C. 280A. If a dwelling unit "is used during the taxable year by the taxpayer as a residence 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 the gross income of such taxpayer under section 61." The same subsection says "no deduction otherwise allowable under this chapter because of the rental use of such dwelling unit shall be allowed."

That text sets three conditions:

• Fewer than 15 days. Fourteen is the most. The count is for the home, across every renter, so ten nights on a vacation rental site plus five company meeting days is 15, and the exclusion is gone for all of it.
• A residence. Under section 280A(d)(1) a home is a residence if your personal days exceed 14, or 10% of its fair-rental days when that is larger. A main home passes easily.
• No rental deductions. You cannot depreciate the house or deduct utilities against the rent. Mortgage interest and property tax stay deductible on Schedule A as usual if you itemize.

IRS Publication 527 says a home used as a home and rented less than 15 days is not reported on Schedule E. The section has not been amended since 1997, and the 2025 tax law, P.L. 119-21, did not touch it.

2. The company still has to earn its deduction

Section 280A(g) controls the homeowner's side. The company's side runs on section 162, which allows "all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business," including rentals paid for the use of property for the business.

Ordinary and necessary carries a reasonableness test. The Tax Court said in Sinopoli that an expense is deductible "only to the extent that it is reasonable in amount," and that reasonableness "has particular significance in dealings between related parties." A company renting its owner's house is the textbook related-party deal. So the rent has to be what the company would pay an outside venue for the same meeting, and the meeting has to be one the business needed.

A board dinner for three owners and a full-day planning session for twelve staff justify very different rates. Price the room the meeting needs, not the whole house.

3. The math on $24,000 of rent

A married couple files jointly for 2026. One spouse owns 100% of an S corporation that pays a $120,000 salary and has $180,000 of profit on the K-1 before any rent. They have no other income and take the $32,200 standard deduction from Rev. Proc. 2025-32. The company holds 12 full-day sessions at the house: a two-day planning retreat, four quarterly reviews and six manager training days. Three local venues quote $1,800, $2,000 and $2,300 a day for a room that fits the group, and the company pays the middle quote. Federal tax only.

Both taxable incomes fall in the 24% bracket, which runs from $211,400 to $403,550 for joint filers in 2026. The lower one clears the bottom of that bracket by only $1,200, so more rent than this would push part of the saving down to 22%. Taxable income falls by $19,200, which is the $24,000 of rent less the $4,800 of QBI deduction it costs, and $19,200 at 24% is $4,608. Salary and payroll tax do not change.

Above $403,500 of taxable income on a joint return, the 2026 QBI threshold, the deduction starts to depend on wages and property, and for a service business it phases out, so the math has to be rerun.

The $2,000 rate is an assumption for this example. In Sinopoli the court allowed $500 a meeting for one meeting a month, in line with local meeting space at about $500 for a full or half day (section 7). A rate four times that needs quotes for space the size of the room you actually use, and attendees to fill it.

4. Why a sole proprietor gets nothing from it

Rent needs a landlord and a tenant who are different taxpayers. A sole proprietor's business is the owner, so a transfer from the business account to the personal account is not rent. It is the owner moving money between two of their own accounts. There is no deduction to claim and no income to exclude.

A single-member LLC that has not elected corporate treatment is in the same spot. Treasury Regulation 301.7701-2(a) says a disregarded entity's "activities are treated in the same manner as a sole proprietorship, branch, or division of the owner." The route for that owner is the home office deduction under section 280A(c)(1), which needs space used exclusively and regularly for the business.

5. How it runs through an S corporation

An S corporation is a separate taxpayer, so it can rent from a shareholder. The company deducts the rent on Form 1120-S, which lowers the ordinary income on every owner's K-1. The owner who owns the house excludes the rent under section 280A(g). Rent is not wages, so rent the company can support carries no payroll tax. It does not replace a reasonable salary either. In Sinopoli the court agreed with the IRS that the rent looked like a way to pay out the company's earnings.

With more than one owner, the other owners pay for part of it. If two 50% shareholders split a company and one is paid $24,000 of rent, each K-1 falls by $12,000, and only the homeowner gets the tax-free cash. Agree on that in writing before the first meeting.

The company also owes the owner a Form 1099-MISC. Under the Form 1099-MISC instructions, rents of $2,000 or more go in box 1 for tax years beginning after 2025. The form reports rent you then leave out of income, so keep the day count and invoices ready to show why the 1099 amount is not taxed.

6. How it runs through a partnership

A partnership, or a multi-member LLC taxed as one, can rent from a partner too. Treasury Regulation 1.707-1(a) treats a partner who deals with the partnership "other than in his capacity as a partner" as if he were not a member for that transaction. The partnership deducts the rent and the partner excludes it.

The partnership version can save more. A general partner's share of ordinary income usually carries self-employment tax under section 1402, so a rent deduction lowers both that tax and the income tax. For an LLC member the limited-partner line is unsettled, so confirm how your share is treated before counting on that saving. The rent itself is not self-employment income, because section 1402(a)(1) excludes rentals from real estate.

7. What went wrong in Sinopoli

The case owners should read is Sinopoli v. Commissioner, T.C. Memo. 2023-105. Three owners of Planet LA, LLC, an S corporation that ran Planet Fitness franchises in Louisiana, had the company pay them rent for business meetings at their homes from 2015 through September 2017. Planet deducted $290,900 of rent over less than three years, and the owners treated the rent as tax-free under section 280A(g).

In the end Planet kept $16,500 of rent deductions. The reasons, from the opinion:

• No records of the meetings. There were no minutes, agendas or calendars. Planet deducted three meetings a month, one at each home, and the owners proved one a month for 2016 and 2017.
• A rate built on the wrong measure. No appraisal. The owners took a $1.83 per square foot meeting-space rate and applied it to their homes' common areas, and during 2016 the company moved to paying each owner $3,000 a month.
• Market evidence on the other side. The revenue agent found local meeting space for 500 to 1,200 people rented for about $500 for a full or half day. The court called the $500 a month it allowed "actually generous," because only small parts of the homes were used.
• Owners as the only attendees. The meetings were generally just the three owners, and the court found their testimony about what business was done "vague and unconvincing."

The court wrote: "We agree with respondent that it seems that petitioners adopted a tax savings scheme to distribute Planet's earnings to petitioners through purported rent payments, claim rent deductions, and exclude the rent from their gross income relying on section 280A(g)." No penalties were at issue, because the IRS had not asserted any. The other $274,400 of rent deductions was disallowed.

8. The file that makes it hold up

Every gap in Sinopoli is a document that was never made. For each day the company uses the house, keep:

• Venue quotes. Two or three written quotes from local hotels or meeting venues for a room that fits the group, dated before the meeting.
• An agenda and attendee list. Business topics, start and end times, and who came. Employees, managers or outside guests in the room make the business purpose easy to show.
• Minutes. What was decided. A one-page summary written that week is enough.
• An invoice and a rental agreement. The owner invoices the company for each day at the agreed rate.
• Payment from the business account. The company pays the invoice by check or transfer from its own account to the owner, booked as rent.
• A day count for the house. Every rental day from every source, so the total stays at 14 or fewer.

9. Steps for the rest of 2026

• Check the entity first. A Schedule C or a disregarded LLC cannot use the rule; an S corporation, partnership or C corporation can.
• Count 2026 rental days now. Add any short-term rental nights to the meeting days already held. Fourteen is the ceiling.
• Price the room, not the house. Get venue quotes sized to the meeting before you set a rate.
• Hold real meetings. An agenda, attendees beyond the owners where the business has them, and minutes for each day.
• Pay it properly. Invoice, business-account payment and a Form 1099-MISC early in 2027 if the total is $2,000 or more.

Our tax planning work runs this both ways before a dollar moves: the company's deduction, your exclusion, and what the QBI deduction gives back. We keep the quotes, agendas and invoices with the books so the return and the paper trail match. Book a call and bring your 2025 return, your entity type, and a list of the meetings you held or plan to hold at home this year. If the rule saves less than the paperwork costs you at your income, we will say so.

General information for owner-operators, not tax advice. Thresholds change and state treatment varies; confirm current requirements for your own facts before acting.