Would you like someone to pay your mortgage on your home? Well, it’s possible!
You can rent your home out and essentially generate income to cover your mortgage.
Know what’s even better than that income? Not paying TAX on that income!
Got your interest? Then keep reading!
There’s a little known IRS rule under Section 280A that allows homeowners to rent out their home for up to 14 days per year without needing to report the rental income. It’s called the Augusta Rule.
Originally created to protect residents of Augusta, Georgia, it was designed to help those who would rent out their homes to attendees of the annual Masters golf tournament. The Augusta Rule now applies to any taxpayer who owns a home in the United States (provided that your home is not your primary place of business).
Say, for example, you live near Whitetail Ski Resort. You can rent your home out for up to 14 days in peak ski season for a premium rate, make some cash AND not have to report it as taxable income!
Another option if you do in fact own a business, is to rent your home out as a corporate retreat destination. For example, as a business owner, you host a monthly meeting with your Board of Directors. Under the Augusta Rule, your business can pay you a reasonable amount to rent your house to conduct the once-per-month meetings. Provided that the total rental period doesn’t exceed 14 days and the rent charged is reasonable, your business is able to deduct the rent payment on the business tax return and you won’t have to report this as income on your personal taxes!
As always, having documentation to support your company claiming this as a business deduction is critical. Record keeping suggestions to prove the rent was reasonable include printing rental quotes for similar meeting locations, document dates when a meeting occurred, and keep minutes or other records of business discussions. Double benefit!
There are, of course, a few caveats.
For example, the rent you charge must be reasonable and in-line with what the rental market supports; charging $1000 per night when comparable houses rent for $200 per night is not considered reasonable!
Also, since you don’t claim the income, you also cannot claim rental-related expenses. So the cost for utilities used during the rental period, fees and supplies to have the home cleaned and other such rental-related expenses are not deductible either.
Lastly, keep in mind that you are letting other people occupy your home. Make sure you have a formal rental agreement in place and that you collect the rent upfront, along with a deposit for possible property damage. Check with your homeowner’s insurance agent to see if you need special coverage, and check with local officials to find out if you need a permit for a short-term rental. If you decide to use a service to handle the rental and save you some aggravation, ask what fees you’ll owe.
At Saunders Tax & Accounting, it’s our passion to help clients learn the legitimate tax strategies to earn money and save taxes. If you would like us to help you, schedule an appointment by contacting us at 301-714-2071 or visiting www.SaundersTax.com. We have been helping our clients enjoy a Less Taxing Life and More Prosperous Solutions since 1984. And we can help you, too!
