The Augusta Rule Can Help You Save Money If You Can Master The Rules

The Masters Tournament teed off yesterday at the Augusta National Golf Club in Atlanta, Georgia. The iconic tournament has given rise to some of golf's greatest moments (Tiger's win in 1997, anyone?) and its name to a special tax break.

The Masters

The Masters tournament began in 1934 and has been played every year except during World War II (that explains why this year's tournament is the 88th Masters).

The tournament, played during the first full week in April since 1940, takes place over four days as the golfers to play 72 holes. The winner takes home prize money (this year's $18 million purse will be split among the top golfers), the infamous Green Jacket, and a club membership. Their name is also etched alongside icons like Arnold Palmer and Jack Nicklaus into a 130-pound silver trophy that remains at Augusta National.

Attending the Masters isn't cheap. If you don't get in through the annual lottery, you can pick up tickets—I mean, "badges"—from anywhere between $500 and $1,500 per day (it’s much higher on some reseller sites).

If you go, it's hard to say how many of your fellow golf fans will be standing next to you. Augusta National does not release numbers for Masters attendance, but it's been pegged at around 40,000. (By way of comparison, that is just a bit less than the number of people who can fit into the Atlanta Braves' Truist Park, about two hours and change west.) The crowds are estimated to swell to 150,000 for the practice rounds.

Rental Income

This means that, for at least one week out of the year, Augusta, Georgia, is buzzing with tourists—many of whom have money to spend. Local homeowners know the income potential and have been renting out their homes even before the advent of Airbnb.

There's just one potential problem: Money you receive for the use of real estate—even if it's your personal residence—are usually taxable to the owner as rental income. And that's not a problem that is restricted to the Masters—it also applies to other short-term rentals.

Fortunately, Congress realized that it wasn’t sensible to tax short-term rental income that was never intended to be treated as a business. The result was the section 280A exclusion, written into the tax code. The provision, often called the Augusta Rule in a nod to the Masters, carves out an exclusion to the premise that funds you receive for the use of real estate are always taxable.

Under section 280A, if you rent out your residence for fewer than 15 days, you do not report any of the rental income and do not deduct any related expenses as rental expenses. However, if you rent your home for 15 days or more during the year, you would include all your rental income in your income.

That doesn't just apply to the Masters. It can also come in handy when occasionally renting out your home for other short-term events (such as the Men's World Cup that’s heading the U.S. in 2026).

But over time—and TikTok—what was meant to serve as an exclusion for the sake of convenience has morphed into an occasionally controversial tax planning technique. I say occasionally controversial because the technique itself is sound—but some of the pushes, especially on social media, to shoe-horn it into every possible situation can be concerning and are often wrong.

The Augusta Rule At Work

The technique is this: If you own a business, you can pay rent out of the company in exchange for the use of your home for meetings or other business-related gatherings. If you meet the criteria, including the limitations on the number of days, you can claim a tax break. The benefit is that you're shifting money from the business—where it's deductible—to your own pocket, where it's not reportable. A win-win, right?

Maybe. The rule is heavily dependent on following the rules and keeping excellent records. Here’s a look at some of the most important.

The property must be your home or equivalent. The tax code uses the term "dwelling unit," which includes a house, apartment, condominium, mobile home, boat, or similar property but does not include a space used exclusively as a hotel, motel, inn, or similar establishment. (You also can't use this strategy if your home is your principal place of business.)

The rental price must be reasonable. An excellent way to ensure that the rent you’re charging is appropriate is to look at comparable spaces in the area. If similar spaces in your area rent for $500/day, your rental should also be in that ballpark. Remember to take into consideration any restrictions: for example, if your home is 2,500 sq. feet, but you're only allowing access to 500 sq. feet, a price comparison should reflect the smaller footprint.

If the rental is for a business purpose, you must treat it like a business transaction. Have a rental agreement in place. It also makes sense to prepare an invoice for the rental, and write the check or transfer the funds from the business contemporaneously as payment.

Document the purpose of the meeting or event. Take corporate minutes or prepare other records, like a meeting agenda, to confirm that you talked business. If it was a board meeting, note the attendance to show you had a quorum. If it’s a planning meeting or team-building day, take photos to show that it was a legitimate business event.

Don’t forget the business deduction rules. Keep in mind that to claim a deduction for business expenses, section 162 requires that the expense is "ordinary and necessary." According to the IRS, an ordinary expense is common and accepted in your trade or business. The IRS defines a necessary expense as "one that is helpful and appropriate for your trade or business." For an expense to be deductible, it needs to be both.

Practical Considerations

Pay attention to the details. The tax code is vast, and it's filled with nuance. And, as here, one code section (280A) may be limited by another (section 162). There may also be practical restrictions (for example, a sole proprietor or a disregarded single-member LLC can't claim business-related deductions for meetings under the Augusta Rule) or logistical ones (your township or HOA may not allow you to rent your property).

You’ll also want to factor in any additional costs (like consulting with your tax pro or drafting a rental agreement), as well as consider your level of comfort when it comes to audit risk.

Think it doesn't matter? Last year, a Tax Court case, Gary J. Sinopoli Jr. et al. v. Commissioner ( T.C. Memo. 2023-105), offered a cautionary look at the Augusta Rule where there was, the IRS alleged, a failure to properly substantiate costs and business purposes.

Finally, we talk a lot about federal income taxes because those tend to be the bigger numbers, but they aren't the only tax rules that matter. State and local taxes may apply to rentals and may not allow for exclusions. And, in some areas, you may need a business license or permit to rent out your property.

The bottom line? Tax planning techniques like this one can be a great way to save money, but you should approach them with care (especially if they are new to you). Familiarize yourself with the rules—and follow them. Keep excellent records. And, as always, if you have questions, check with a tax professional.

By Kelly Phillips Erb, Forbes Staff