IRC Section 280A(g) Explained: The 2026 Augusta Rule Playbook for Tax Pros

IRC Section 280A(g) Explained: The 2026 Augusta Rule Playbook for Tax Pros

Here is IRC Section 280A(g) explained in one breath. When a taxpayer rents a dwelling unit used as a residence for fewer than 15 days in a tax year, that rental income stays out of federal gross income. Meanwhile, the renting business may still deduct the payment. Therefore, tax pros can turn one statute into real client savings. Let’s break down how.

Table of Contents

• Key Takeaways
• What Is IRC Section 280A(g) Explained in Plain English?
• Who Qualifies, and Which Entities Actually Work?
• Why Must You Pass Two Separate Tests?
• How Do You Prove Fair Market Value?
• What Documentation Survives an Audit?
• How Much Can Clients Actually Save?
• What Mistakes Trigger IRS Scrutiny?
• Uncle Kam in Action: The EA Who Built a $60K Advisory Line
• Next Steps
• Related Resources
• Frequently Asked Questions

 

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Key Takeaways

• Rent a residence fewer than 15 days per year. The income escapes federal gross income.
• Fewer than 15 days means 14 days maximum. Both phrasings describe the same limit.
• The owner gives up rental expense deductions tied to those days. That trade rarely matters.
• The business deduction is a separate test under Section 162. Both tests must pass.
• Sole proprietors generally get no benefit. You need a separate taxable entity.
• Fair market rate plus contemporaneous records decide audit outcomes. Documentation is the strategy.

What Is IRC Section 280A(g) Explained in Plain English?

Most tax pros meet this provision under its nickname: the Augusta Rule. The name comes from Augusta, Georgia. Homeowners there rent their houses to Masters Tournament visitors each spring. Those short-term rentals produce cash that never hits gross income. Congress wrote the exclusion so casual, occasional rentals would not create tax filings and recordkeeping burdens. Consequently, the provision is not a loophole. It is the tax code doing exactly what lawmakers drafted.

You can read the statute directly at the Cornell Legal Information Institute text of Section 280A. Furthermore, the IRS discusses the underlying vacation-home and personal-use rules in IRS Publication 527, Residential Rental Property. Both sources anchor everything that follows. For a broader planning frame, see how we sequence provisions like this inside a full proactive tax strategy engagement.

14 Days or Fewer Than 15 Days?

Both phrases mean the same thing. The statute says “fewer than 15 days.” In practice, that caps you at 14 rental days. Nevertheless, use the statutory phrasing in client memos. It reads more precisely and it signals you read the actual code section.

The count is cumulative across all rental use of that dwelling. Therefore, a client who rents a lake house to strangers for 10 days cannot then rent it to her S corporation for 8 days. That totals 18 days. As a result, the exclusion disappears for the entire tax year.

The Two-Sided Mechanic

Section 280A(g) gives and takes. It excludes the income. In addition, it disallows deductions attributable to that rental use. Most clients shrug at the second half. Fourteen days of prorated utilities and insurance is a tiny number. Meanwhile, the excluded rent can reach five figures.

Party	Treatment	Governing Rule
Homeowner	Rent excluded from gross income	Section 280A(g)
Homeowner	No expense deduction for rental days	Section 280A(g)
Business	Rent deductible if ordinary and necessary	Section 162
Business	Amount must be reasonable	Section 162 and case law

Who Qualifies, and Which Entities Actually Work?

This gate stops more clients than the 14-day limit does. A sole proprietor cannot pay rent to himself and create a deduction. The payer and payee are the same taxpayer. Consequently, the Schedule C deduction and the excluded income cancel out. Nothing happens.

Entity structure therefore becomes the first advisory conversation. Many business owners with growing profit already need an S election for payroll tax reasons. Section 280A(g) simply adds another reason. If you advise on structure, our entity structuring service framework walks through the analysis step by step.

Entity Eligibility Matrix

Entity Type	Works?	Why
S corporation	Yes	Separate filer; reduces pass-through income
C corporation	Yes	Separate taxpayer; true entity-level deduction
Partnership	Yes	Separate filer; watch partner-level allocations
Multi-member LLC	Yes	Taxed as partnership by default
Single-member LLC (disregarded)	No	Same taxpayer as owner
Sole proprietorship	No	No separate payer exists

Which Properties Count as a Dwelling Unit?

The statute says “dwelling unit used as a residence.” That phrase reaches beyond a primary home. A vacation cabin, a lake house, or a condo can qualify. However, the owner must use it as a residence during the year under the personal-use tests.

This detail creates real planning room. A client with a mountain house near a small airport may host an annual leadership retreat there. Moreover, the property genuinely serves the business purpose better than a hotel ballroom. Advisors working with clients who hold multiple properties should map every eligible dwelling before year-end.

Why Must You Pass Two Separate Tests?

This is where thin content fails clients. Many articles treat the strategy as one rule. In reality, two independent standards apply. Understanding both separates you from a preparer who read a social media post.

Test One: The Owner-Side Exclusion

Test one is mechanical. Count the days. Stay under 15. The dwelling must be used as a residence. That’s it. No business purpose analysis applies here. Furthermore, the exclusion applies regardless of who the renter is.

Because it is mechanical, this test rarely fails. Day counting errors cause most problems. Therefore, track days in a shared calendar and reconcile at year-end.

Test Two: The Business-Side Deduction

Test two is judgment based. Under Section 162, business expenses must be ordinary and necessary. Courts also require amounts to be reasonable. Consequently, the rent must reflect a genuine business need at a genuine market price.

Ask three questions for every rental day. First, what business happened? Second, why did that business need a venue? Third, would an unrelated party charge this amount? If any answer is weak, the deduction is weak. The IRS explains general substantiation expectations in Publication 535 guidance on business expenses.

Notice the asymmetry. A client can win test one and lose test two. In that case, the rent stays tax-free personally. Meanwhile, the business loses the deduction. That result wastes the strategy entirely.

How Do You Prove Fair Market Value?

Every competitor says “use fair market value.” Almost none explain how. This gap is your opportunity to look like the expert in the room.

The Five-Step FMV Benchmarking Method

• Define the space honestly. Note square footage, seating capacity, parking, and technology.
• Request written day-rate quotes from three comparable venues within 25 miles.
• Strip out food, staffing, and audiovisual costs. You want the room rate only.
• Set your rate at or below the middle quote. Never anchor to the highest number.
• Re-benchmark every year and date every document you save.

Hotels, coworking spaces, event centers, country clubs, and conference rooms all serve as comparables. Additionally, short-term rental listings for whole-home bookings can support a rate. Screenshot the listing with the date visible.

A Sample Rate Calculation

Assume three quotes come back at $900, $1,200, and $1,600 per day. The middle quote is $1,200. Therefore, a defensible rate lands between $1,000 and $1,200. Multiply $1,200 by 12 meeting days. The result is $14,400 of excluded rent.

Now compare that to a $6,000 rate for a suburban living room. The gap between the claim and the comparables is the entire audit story. Consequently, discipline on rate selection protects the deduction more than any other single step.

Strategies like this rarely stand alone. Instead, they belong inside a sequenced plan across the 1040, the 1120-S, and every K-1. That is why we built entity-aware tax planning software around the MERNA framework. It models Section 280A(g) alongside retirement, entity, and deduction moves so you see the combined effect, not one isolated line item.

What Documentation Survives an Audit?

 

 

Documentation is not paperwork. It is the strategy. Two clients can claim identical amounts. The one with contemporaneous records wins. The other loses. Therefore, build the file as you go, not in March.

The Seven-Item Compliance Checklist

• Written rental agreement between the entity and the owner, signed before the event.
• Board resolution or member consent authorizing the rental and the rate.
• Dated agenda listing specific business topics, not vague headings.
• Minutes recording decisions made, attendees present, and start and end times.
• Three dated FMV comparables supporting the day rate.
• Invoice from the owner to the entity for each rental day.
• Bank record showing payment from the business account to the owner’s personal account.

What Makes an Agenda Defensible

Vague agendas sink good facts. “Strategy discussion” tells an examiner nothing. Instead, write line items an outsider can verify. For a dental practice, list hygienist scheduling, insurance contract renewals, equipment financing, and OSHA compliance updates.

Then attach outputs. A revised staffing chart proves a staffing discussion happened. A signed vendor decision proves a purchasing discussion happened. Consequently, the agenda becomes evidence rather than assertion.

Handling the 1099 Question

Reporting confuses many preparers. Businesses generally report rents of $600 or more on Form 1099-MISC, Box 1. However, the owner excludes the income under Section 280A(g). That mismatch can generate an IRS notice.

Practitioners take different positions here. Some issue the 1099 and attach an explanatory statement to the return. Others rely on the exclusion and skip issuance. Either way, document your reasoning in the file. Furthermore, keep the rental agreement handy for notice responses. Consistent filing and reporting support prevents these notices from becoming client emergencies.

How Much Can Clients Actually Save?

Numbers sell strategy. Here are three scenarios plus one that fails. Run your own client figures through our Fayetteville small business tax calculator to size the 2026 impact quickly.

Scenario One: The Medical Practice

A physician-owner runs a practice as an S corporation. She hosts 12 quarterly leadership meetings at her home over the year. Comparable conference space in her metro quotes $1,400 per day. She sets the rate at $1,300.

The math: 12 days times $1,300 equals $15,600. The S corporation deducts $15,600. Meanwhile, she reports zero rental income. At a combined 35% marginal rate, the household saves roughly $5,460. Agendas covered staffing, scheduling, equipment purchases, billing workflow, and HIPAA compliance.

Scenario Two: The Construction Company

A general contractor operates through a multi-member LLC. The owner’s lake house hosts an annual three-day leadership retreat. Regional retreat venues quote $2,000 per day for comparable capacity. He charges $1,800.

Three days at $1,800 produces $5,400 excluded and deducted. He adds eight single-day planning meetings at his primary residence at $700 each. That adds $5,600. Total benefit reaches $11,000 across two dwellings. Notably, each property keeps its own day count.

Scenario Three: The Failure Case

A consultant operates as a sole proprietor. He “rents” his condo to himself for 14 days at $2,000 daily. He books a $28,000 Schedule C deduction. However, no separate entity exists. Consequently, the deduction fails immediately.

He also kept no agenda, no comparables, and made no actual payment. Therefore, four of five pillars collapsed. This is exactly why the entity conversation must come first.

Scenario	Days	Day Rate	Excluded Rent	Outcome
Medical S corp	12	$1,300	$15,600	Defensible
Construction LLC	11	Mixed	$11,000	Defensible
Sole proprietor	14	$2,000	$0 benefit	Fails

What Mistakes Trigger IRS Scrutiny?

Section 280A(g) itself is not aggressive. Sloppy execution is. Examiners look at substance over form. If the arrangement looks like a paper transfer, they treat it as one.

The Six Red Flags

• Rates far above local comparables with no supporting quotes on file.
• Journal entries instead of real bank transfers. Cash must actually move.
• Minutes created after year-end. Contemporaneous means created at the time.
• Family gatherings labeled as board meetings without genuine business content.
• Day counts that combine other rental use and cross the 14-day ceiling.
• Disregarded entities or sole proprietorships claiming the deduction.

State Conformity Varies

Section 280A(g) excludes income from federal gross income. States decide their own conformity. Most rolling-conformity states follow the federal treatment. However, some decoupled states may differ. Therefore, check state rules before promising a combined savings number.

This nuance matters for multi-state clients. A California resident and a Texas resident may see different net results. Consequently, always model federal and state separately in client deliverables.

Ready to package this into a paid advisory deliverable? A short call with our team shows you how EAs price and deliver strategies like this. Learn how the Uncle Kam marketplace helps tax pros transition to advisory, complete with AI software, MERNA certification, and warm leads.

Uncle Kam in Action: The EA Who Built a $60K Advisory Line

Client Snapshot: Marcus is a 38-year-old Enrolled Agent with eight years of experience. He runs a solo practice with 190 returns annually.

Financial Profile: His practice generated $215,000 in revenue. Roughly 92% came from compliance work. His average fee sat at $1,100 per return.

The Challenge: Marcus hit a hard ceiling. He could not add returns without hiring. Meanwhile, CPA firms in his market pitched advisory retainers to the same business owners. He believed his EA credential limited him. In reality, he lacked a repeatable delivery system.

The Uncle Kam Solution: We started with his existing book. Fourteen clients already operated as S corporations or multi-member LLCs. All fourteen owned homes. None used Section 280A(g). Consequently, we built a standardized Augusta Rule package for him.

The package included a rental agreement template, a board resolution template, an agenda framework by industry, an FMV benchmarking worksheet, and a year-end reconciliation checklist. Furthermore, we layered the strategy into broader plans covering entity structure and retirement contributions. That combination let Marcus charge for a plan, not a single tactic.

The Results: Marcus presented plans to all fourteen clients. Eleven engaged at $5,500 each. That produced $60,500 in new advisory revenue during 2026. Across those eleven clients, documented Section 280A(g) rent totaled $164,000. Estimated combined tax savings reached $52,000 in year one alone.

• Client Tax Savings: Approximately $52,000 across eleven engagements.
• Marcus’s Investment: $12,000 in program and system costs.
• First-Year ROI: Roughly 5x on new advisory revenue alone.

Marcus also raised his average engagement value by 400% on those accounts. Similar outcomes appear across our documented client results. The credential never held him back. The system did.

Next Steps

Move from reading to revenue with these five actions. Each one takes under an hour.

• Sort your book by entity type. Flag every S corp, C corp, and partnership.
• Build one rental agreement template and one board resolution template today.
• Collect three venue quotes per client market and save them with dates.
• Review the MERNA method sequencing framework to bundle this with other strategies.
• Ready to scale? Book a free strategy session to get a personalized roadmap for launching or scaling your advisory firm.

Related Resources

• Tax strategy blog for practitioners
• In-depth tax planning guides
• Free tax calculators for client modeling
• Advanced planning for high-net-worth clients
• 2026 tax deadline calendar

Frequently Asked Questions

Is it 14 days or fewer than 15 days?

Both describe the same ceiling. The statute reads “fewer than 15 days.” Practically, that means 14 days maximum. Therefore, use the statutory language in memos and the plain language with clients.

Can a sole proprietor use this strategy?

Generally no. A sole proprietor and the owner are the same taxpayer. Consequently, no deductible payment exists. Consider an S election or another separate entity first. That structural change unlocks the benefit.

Does a second home or vacation property qualify?

Yes, if the owner uses it as a residence during the year. Each qualifying dwelling carries its own day count. However, all rental use of that specific property counts toward its 14-day limit.

What happens if a client exceeds 14 days?

The exclusion disappears for that entire tax year. It does not phase out gradually. All rental income becomes reportable. Meanwhile, the owner may then deduct allocable rental expenses under the regular vacation-home rules.

Should the business issue a Form 1099-MISC?

Practices differ. Rents of $600 or more generally trigger reporting in Box 1. However, the owner excludes the income, which creates a mismatch. Document your position and keep the rental agreement ready for notice responses.

Does this affect the home office deduction?

It can conflict. Never charge rent for space already claimed as a dedicated home office. Instead, rent common areas used for meetings. Additionally, keep the two claims clearly separated in your workpapers.

Do virtual meetings count as business use?

This position is weak. The rent pays for physical space. If attendees never gather there, the business need for a venue is hard to prove. Therefore, favor in-person meetings with documented attendees.

Can family members attend the meeting?

Family who work in the business may attend as employees or officers. However, a family celebration with a token agenda fails the business purpose test. Keep the substance genuinely commercial and record real decisions.

This information is current as of 8/6/2026. Tax laws change frequently. Verify current rules and limits with the IRS or your state tax agency if reading this later. Additionally, this article is educational and not individualized tax advice. Consult a qualified professional before implementing any strategy.

Last updated: August, 2026