One of the cleanest tax strategies in the code is also one of the most overlooked: the Augusta Rule, named for the section of tax law that lets you rent out your personal residence for up to 14 days per year and exclude the rental income entirely from federal tax. For Houston business owners with home offices and an S-corp or LLC, this rule unlocks $5,000-$15,000 of tax-free income annually.
Part of our work for real estate investors — see real estate CPA services in Houston for scope and fees.
What Section 280A(g) actually says
If you rent your personal residence for fewer than 15 days during the tax year, the rental income is NOT taxable. You don’t even report it on your return. The flip side: you don’t deduct rental expenses against it. Cash in your pocket, no tax. The rule was originally written for homeowners near Augusta National who rent out their houses during The Masters golf tournament — hence the nickname.
The business owner application
If you own an S-corp or LLC, you can rent your personal home to your business for legitimate business purposes — like a board meeting, an annual planning retreat, or a client offsite. The business deducts the rental expense. You receive the rental income tax-free as long as total days rented stay under 15.
For a Houston S-corp owner who hosts 12 monthly “board meetings” or strategic planning sessions at their home throughout the year, that’s 12 days × $750/day = $9,000 of tax-free income to the owner and a fully deductible expense for the business.
How to do it correctly
- Document the business purpose. Each rental day needs a real reason: board meeting, strategic planning, client meeting, training session, partner offsite. Save the agenda.
- Set a market rate. Pull comparable hourly conference room rentals in Houston (Convene, Industrious, hotel meeting rooms). $500-$1,500/day for a comparable space is typical. Document the rate basis.
- Have the business issue a check. Real money moves from business to personal account. The transaction must be arms-length.
- Keep total days under 15. Day 15 makes the entire rental income taxable retroactively.
- The business needs a real reason to meet at your home. If your business has its own office space, the IRS questions why you needed to rent your house. Solo home-based businesses or businesses without dedicated office space have the cleanest case.
The math
Houston S-corp owner, 32% federal bracket, 12 board meeting days at $750/day:
- Business deducts $9,000 (saves ~$2,880 in federal tax through pass-through)
- Owner receives $9,000 tax-free
- Net household benefit: $9,000 cash + $2,880 tax savings = $11,880
If you do this every year for 10 years, that’s $118,800 of tax-free wealth accumulation versus paying yourself the same $9,000 as W-2 wages.
What can go wrong
- Renting more than 14 days = entire rental income becomes taxable
- Rate too high relative to comparable conference rooms = IRS challenges as disguised distribution
- No documentation = IRS treats it as personal use, not business deduction
- Schedule C sole proprietor (not S-corp) = won’t work the same way; you’d be paying yourself
- Same-day cancellations or fake meetings = audit risk
Houston-specific consideration
If your home is in a federally declared disaster area or affected by hurricane damage, recent IRS guidance has clarified some adjustments to rental fair market value. Talk to a CPA before applying old rate documentation.
Pair with home office and accountable plan
The Augusta Rule isn’t mutually exclusive with home office reimbursement. You can:
- Receive home office accountable plan reimbursement monthly (S-corp pays you for your dedicated home office space)
- PLUS Augusta Rule for board meetings using common areas of the home
Combined, these can shift $15,000-$30,000 from business income to tax-advantaged personal income annually.
Bottom line
The Augusta Rule is one of the cleanest tax strategies available to Houston S-corp owners with home offices. Done with proper documentation, it produces meaningful tax-free income year after year. Done sloppily, it’s an audit invitation.
To set this up correctly for your specific business and document the position properly, call (832) 594-0339 or contact us. We work this through with S-corp clients as part of annual tax planning.