What is the Augusta rule and how do self-employed people use it?

The mechanics: your S-corp or LLC holds a legitimate business meeting, planning retreat, board meeting, or similar event at your home. The business pays you a fair market rental rate for the space. You receive rental income, reported on Schedule E, but exclude it under the 14-day exception (fewer than 15 days of personal residence rented). The business deducts the payment. Net taxable income on your personal return from this transaction: zero. Net business deduction: the full rental amount.

Fair market rental rate: this is the most scrutinized element. The rate must be what an arm's-length third party would charge for the same space on the open market. Document the comparable rate from an actual source: Peerspace, Airbnb commercial listings, hotel meeting room rates in your area, or a commercial event space quote. The IRS has challenged Augusta rule arrangements specifically where inflated rental rates were used. Use a defensible, documented comparable.

The 14-day limit: the exclusion applies only if the home is rented for fewer than 15 days during the year. Once you rent for 15 or more days, all rental income is taxable and the exclusion disappears. Track each rental day carefully. Do not rent to your business more than 14 times in a calendar year regardless of the length of each event.

Documentation required: a written rental agreement between you (the homeowner) and the business (as tenant), signed before the event; an agenda for each meeting held; calendar entries or invitations showing the meeting occurred; attendance records. Thin documentation is the main way this strategy collapses under examination. The IRS has disallowed Augusta rule deductions where there was no documentation that any legitimate business activity occurred.

Who benefits most and who should avoid it: S-corp owners who hold legitimate business meetings are the cleanest use case. The structure is straightforward: the S-corp is the business, you are both the sole shareholder and the homeowner. Sole proprietors on Schedule C who also claim the home office deduction face complex interactions between Schedule C, Schedule E, and the home office rules. The S-corp structure keeps them cleanly separate. At 32% to 37% marginal rate and $500 to $1,000 per meeting day, the annual tax savings can be meaningful.