Don’t run your business exclusively from your home, but would like to use your home as a deduction anyway? Business owners like you can rent your home to your business for events and deduct it as an expense.
In previous posts we talked about deductions you could claim in your home based business, provided you used part of your home exclusively for business. This is for those who aren’t using their home as their exclusive place of business.
The Augusta Rule
In Augusta, Georgia is a famous golf tournament, called the Masters. When this small town gets a deluge of visitors for the golf tournament, they rent out their homes to people. Because it happened enough, they wanted special tax treatment, and they got it. This treatment is now called the Augusta Rule or Section 280A(g) of the Internal Revenue Code. Here it is:
(g)Special rule for certain rental use
Notwithstanding any other provision of this section or section 183, if a dwelling unit is used during the taxable year by the taxpayer as a residence and such dwelling unit is actually rented for less than 15 days during the taxable year, then—
(1)no deduction otherwise allowable under this chapter because of the rental use of such dwelling unit shall be allowed, and
(2)the income derived from such use for the taxable year shall not be included in the gross income of such taxpayer under section 61.
This means as long as your home isn’t your primary place of business, you can rent it 14 days per tax year and the income is not not taxed in your gross income. To be clear, you still report it on your 1099 for the homeowner’s tax return. However, it would then be listed in Schedule E on the line for ‘other deductions’. Just because something isn’t going to be taxed, that doesn’t mean it shouldn’t be reported.
You want to avoid the ‘lavish and extravagant’ label when renting out your home for business events like conferences, board meetings, etc.. So, find how much it would cost for a similar-sized venue at a hotel or other local event site. Consider meals and other things you would pay for this event if it were hosted there. That amount per day is what you would save hosting the event at your home rather than reserving another space. Document what all these expenses would cost you.
Documentation to Rent Your Home to Your Business
- Document the meeting by scheduling it on your calendar. Attendees should be board members, employees, and current customers only. Not ‘potential clients,’ because that can be interpreted to mean a party with friends, which might seem sketchy to the IRS.
- Take corporate minutes, or if it’s more of a convention, or leadership retreat, document the schedule of everything that will happen at that event.
- Use the comparable costs of doing this at a similarly sized local venue, as mentioned in the paragraph above.
- Make an invoice to the business with the payee as the homeowner.
- Pay the expense.
- Finally, report it on the 1099 and the ‘other deductions’ line of Schedule E.
What if you DO use that house as your primary place of business?
Then don’t do this. Or, if your main residence IS your primary place of business, but you have a second home / vacation home, you can employ this strategy using that secondary residence instead.
Schedule a Free Call
Need help invoicing yourself, or keeping documentation of all these receipts? I can help. Schedule a free bookkeeping strategy call with me. I’ll look over your books, see how I can help you, and get you streamlined in your accounting systems so you can save 80+ hours a year compared to doing it yourself. Let your CPA at least keep the hairs on the sides of their head by ensuring I have all your documentation ready to go for tax season when they need it.