The IRS Rule That Makes Some Rental Income 100% Tax-Free

Most people assume that any money they receive for renting their home is taxable income. It's a reasonable assumption. It's also wrong — at least in a narrow but genuinely useful set of circumstances.

Under IRC Section 280A(g) — commonly called the "Augusta Rule" or the "Masters Rule" — if you rent your personal residence for 14 days or fewer per calendar year, the rental income is completely excluded from your gross income. You don't report it on your tax return. No Schedule E. No self-employment tax. No federal income tax. Just money that flows to you tax-free.

This isn't a loophole in the pejorative sense. It's a provision Congress deliberately included in the tax code — originally motivated by Augusta, Georgia residents renting their homes during the Masters golf tournament. The IRS has confirmed its validity repeatedly. It was not altered by the One Big Beautiful Bill Act signed in July 2025.

How it works

The rule is straightforward. If you rent your personal residence for 14 days or fewer in a calendar year and you use the home personally for more than 14 days that year (or more than 10% of the days it's rented, whichever is greater), you qualify for the exclusion.

A homeowner could theoretically earn $70,000 by renting for 14 nights at $5,000/night — and owe zero federal income tax on that amount. The exclusion has no dollar cap.

The income doesn't need to be reported anywhere on your return. There's no form to file for the exclusion itself. You simply don't include the income.

The one rule that ends everything: day 15

The exclusion is strictly all-or-nothing. The moment you rent for a 15th day in a calendar year — even a single additional day — all rental income for the entire year becomes taxable, retroactively. There is no partial exclusion for the first 14 days.

This matters enormously if you're planning to rent your home for a big event like the World Cup, a major concert, a sports event, or a conference. A two-week stay that runs 14 nights keeps you in the exclusion. A two-week stay that runs 15 nights puts all of it on Schedule E.

Who qualifies

You qualify for the exclusion if:

• The property is your personal residence (the home you actually live in, not an investment property)
• You rent it for 14 or fewer days in the calendar year
• You use the property yourself for the greater of 14 days or 10% of the rental days in the same year

The 10% personal use test is typically easy to meet for a primary residence where you live most of the year. If you rent for 14 days, you need 1.4 days (or 14, whichever is greater) of personal use — and since this is your home, that's almost certainly satisfied.

The trade-off: no rental deductions

Under the exclusion, you cannot deduct any expenses related to the rental activity for those 14 days. No depreciation, no pro-rated utilities, no cleaning fees. The exclusion is clean: the income isn't taxable, and the expenses aren't deductible.

This is the right trade-off for most short-burst renters. At, say, $5,000 for a 14-night rental, you'd owe nothing. If you instead reported the income and deducted expenses, you might deduct $500 in costs and owe tax on $4,500 — a much worse outcome.

Your regular Schedule A deductions — mortgage interest and property taxes — are not affected by the exclusion. You can still deduct those in full as homeowner deductions, even in a year where you also used the Augusta Rule.

The business rental strategy: a legal double benefit

Here's where the Augusta Rule gets genuinely interesting for self-employed people and small business owners.

If you own a business (including an S-corp or LLC), you can rent your personal home to your own business for legitimate business meetings, retreats, or training sessions. The rent you receive is excluded from your personal income (under the 14-day rule). But your business gets to deduct the rent as a business expense, reducing its taxable income.

For example: a business owner rents their home to their S-corp for 10 days of business use at $1,500/day = $15,000 in rent. The homeowner pays no personal income tax on the $15,000. The S-corp deducts $15,000, saving potentially $3,150 at a 21% corporate tax rate. Net benefit: $3,150 in pure tax savings with no economic distortion.

The IRS has scrutinized this arrangement, and the requirements are real: the meetings must be legitimate business activities (board meetings, retreats, strategic planning sessions), the rental rate must be at fair market value, and documentation (invoices, business purpose records) must exist. Using it as a pretext for non-existent business activity is tax fraud.

How this applies to accidental landlords

If you're a homeowner who is renting your property for the first time this year and you're not sure yet whether you want to commit to a full-year tenant, the Augusta Rule creates a low-risk on-ramp.

You can rent your home to a medium-term tenant for up to two weeks — perhaps during the World Cup, a major local event, or summer peak season — receive the income completely tax-free, and decide afterward whether you want to pursue full-year renting.

This is especially useful if your home is near a FIFA World Cup host city this summer. The 11 U.S. host cities will see enormous demand from June 11 through July 19. A 14-day furnished rental at premium rates could generate substantial income with no tax obligation.

What to do before you rent

Even though the income is excluded, keep records:

• Document the dates of rental (calendar entries, booking confirmations)
• Keep the rental agreement, even if informal
• Document your personal use of the property in the same year
• Note the rent amount received

If the IRS ever questions why a large payment appeared in your bank account and you didn't report it, your documentation confirms the legitimate tax-free basis.

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