How to Use Your House to Save Thousands More On Your Taxes.
This underutilized tax rule can end up saving you thousands each and every year.
It’s one of my favorite strategies because of how easy it is to implement. And because this can work if you’re a business owner or if you're a w-2 employee.
If you’re not using this strategy, you’re probably paying the govt more than you should be
It’s called the Augusta rule.
And it’s a tax rule that allows you to receive tax-free income for the use of your house.
Plus if you’re a business owner, it allows you to deduct the use of your house for business purposes
What is it?
The Augusta Rule is a provision in the US tax code that was created in the 70s when Congress was working on a way to limit the tax breaks for people who were renting out their vacation homes and receiving all this tax-free money.
They call it the Augusta rule because when congress was trying to decrease the tax breaks for renting your home, there were a few influential lobbyists living in Augusta Georgia at the time.
If you know anything about golf, that’s where they hold the Masters every year. It’s the premier golf tournament for the year wheres 1,000s of people flock.
During this week, people often rent out their houses due to the high demand for lodging. It’s not uncommon to get $5,000 per day to rent your house.
So the compromise that Congress came to was that taxpayers can rent out their house for up to 14 days per year and pay $0 tax on this income
You might be saying, "so what does this have to do with me? I don’t want to rent out my house."
If you’re a business owner or entrepreneur, you can get a double-dip tax break.
Here’s how...
- You simply rent out the use of your home to your business.
- Your business pays you money to use your home.
- Your business deducts it as an expense.
- And you don’t pay tax on the income you receive.
It’s pretty much a tax-free distribution from your business.
You might be thinking, "what are some valid business reasons to rent out my house?"
Could you...
- hold a leadership team offsite.
- Schedule a video shoot
- Host An event for your business
- Have a mastermind group meeting
Those are just a few of the things business owners do to take advantage of this legal tax strategy.
Be sure to check with your accountant before you implement this strategy and make sure you don’t rent your home for more than 14 days in a calendar year.
People often ask "How much can you rent it out for?"
The answer is It’s however much someone is willing to pay you. The market rate.
If no one has paid you before, you’ll have to look at how much it costs to rent similar spaces. And you’ll want to save that documentation so you can prove your daily rate.
The next step for you is to write down the various ways your business can rent out your home. Then ask your CPA about this and make sure you're taking the right next steps to implement this strategy.
