Tax Saving Tip: The Augusta Loophole

Hi, my name is Greg Reed and I’m head of tax here at SmartBooks. Today I want to talk to you about a tax saving opportunity.

The Augusta Loophole

If you own a corporation and you hold monthly shareholder meetings, instead of holding those meetings offsite by renting a hotel or a another office space, you could potentially rent out your personal residence to your business and deduct that cost from your business expenses.

Now you might be saying, “How does that help me? Because now I have to pick up that income on my personal tax return.” Well, there’s the Augusta rule, which is a loophole that has been in the tax code for several years now, and what that loophole is, is that if you don’t rent your house for more than 14 days in a calendar year, then you don’t actually have to pick up that income on your tax return. This rule was initially introduced to the tax code due to homeowners in Augusta, Georgia, who would rent their homes out for the duration of the Masters Tournament, that takes place annually at the Augusta National Golf Club.

The Caveat 

Now there are some intricacies with this rule. You can’t charge an astronomically high fee to rent out your house. It has to be a fair market value. Say it’s $500 a month that it would cost you for the hotel. You could in theory, charge that for using your personal residence instead of renting a hotel. Now if you’re a C-corp, it moves money tax free from your C-corp into your personal bank account and it eliminates your double tax. And if you are an S-corp or LLC, then that is going to just shift money from taxable to nontaxable.

If this is something that you think you might qualify for, or you want to hear more, contact us so that we can chat.