TAX FREE MONEY IN 2024
MINISTER FINANCES
TAX-FREE MONEY IN 2024
Loophole for Tax-Free Rental Income
(your primary home, secondary home, and vacation home)
With summer upon us, (EXCEPT for the North East) which means many people are starting to think about summer vacations or getting away for a few days.
The IRS has a Section 280A, in the Tax Code which allows homeowners to rent out their home for up to 14 days per year, (the max days) and they DO NOT have to report any of the rental income to the IRS on their tax return.
This does not matter what income bracket you fall into. This is known as the Augusta Rule
If you rent the property out for 15 days or more, all of the money becomes taxable income.
This can work both ways, you can rent out your property for 14 days and then you can tell your friend to rent out their property to you and they will not have to report the income that they receive from you.
You may only claim this deduction on your home, if the home is your primary residence, it is not used for business (office in the home) and you do not rent the home at any other time, more than 14 days.
The August Rule can be applied to the owner’s secondary home, their vacation home as well as their primary home. (only,1 home or 14 total rental days per year).
Why is it called the Augusta Rule?
The Augusta rule IRS exemption was lobbied for by residents of Augusta, Georgia, in the 1970s. Each year, the Master's golf tournament is held at the Augusta National Golf Club, and residents of the city wanted to rent their homes to attendees of the tournament without becoming full-fledged rental businesses. Their efforts paid off, and Section 280A was added to the tax code. Fortunately, today, the IRS Augusta Rule extends to all homeowners in the US, not just those in Augusta, Georgia.
How Does it Work?
SECTION 280A(g) states in part:
“…if a dwelling unit is used during the taxable year by the taxpayer as a residence and such dwelling unit is rented for less than 15 days during the taxable year, then… the income derived from such use for the taxable year shall not be included in gross income…”
In layman’s terms, this means short-term rentals of personal residences are not taxable.
Of course, like with all tax laws, there is some fine print worth noting:
· To qualify for the exemption, the taxpayer must be renting out a dwelling unit that they use as a personal residence. This means that renting out a house, apartment, condo, mobile home, boat or similar property may qualify for the exclusion as long as the taxpayer uses that dwelling unit as a residence.
· The Augusta Rule IRS exemption applies to the owner’s primary homes, secondary homes, and vacation homes.
· Expenses related to the rental of these properties are not deductible.
· The 14-day restriction is cumulative and does not need to be consecutive. For example, if you live close to a popular wedding venue, you might want to rent your home to guests of different weddings throughout the summer and fall. As long as you do not exceed the 14-day rent rule in a single tax year, you can qualify.
· The rental price must be reasonable for that location on that date. For example, if you live in Las Vegas near Raiders, Allegiant Football Stadium, your home may be rented for only $ 200 per night on an average day. However, in the days leading up to the 2024 Super Bowl, you might be able to charge $500, $700, or even $1,000 per night for the same rental due to the increased demand. As long as your rent prices are comparable to the market, it should qualify for the exemption.
Check with Local Regulations
Before you begin renting out your home, local municipalities to see if there are any restrictions or conditions for short-term renters.
Strategically Plan Your Rentals During High Market Rent Times
It’s important to use market rent for the Augusta rule. To ensure you get the most out of your 14-day rent rule, research when the rental market peaks each year in your city. If you can rent your homes during a time when rental prices are high, you can receive more tax-free income.
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Here’s an example of how it might work:
You are part owner of a small business. The business rents your vacation home for three days for the management team to use as a planning retreat. During the long weekend, management strategizes about the upcoming year. The business rents your vacation home at market rent.
The business can deduct the price of the rental as a legitimate business expense. Because you only rent your home for three days the entire tax year, you do not need to report that income on your personal income tax return.
You and the business should keep records that show the business paid market rent for the rental. You can do this by getting rental quotes from similar locations. You should also keep a record that the management team performed business duties while using the rental. They can keep meeting minutes or records that show what strategic decisions were made.
By allowing the business to take a deduction for the rental expense and allowing you to exclude that rental revenue from taxable income, the Augusta rule effectively lets small business owners “double dip” on this benefit. This means that the Augusta rule can be a great tax planning tool for both businesses and business owners.
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For QUESTIONS or COMMENTS:
David Rutledge EA, CEP, RFC
11501 Dublin Blvd. Suite 200
Dublin, CA 94568
925-999-8295