Augusta Rule 2026: Section 280A(g) Rules and Tax Court Cases
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Quick Answer
The Augusta rule is real, and it is two sentences of the Code: if you use a home as a residence and actually rent it for fewer than 15 days in the year, the rent is not included in your gross income and you get no rental deductions (26 U.S.C. 280A(g)). When the renter is your own S corporation, the company can deduct the rent under section 162(a)(3) only if it is ordinary, necessary and reasonable in amount. The Tax Court has looked at it twice in 2023. In T.C. Memo. 2023-105 an S corporation deducted $290,900 of rent over less than three years and the court allowed $16,500, which is 5.7% (our arithmetic); in T.C. Memo. 2023-140 it allowed $0 of the home rent and sustained 20% accuracy-related penalties. The 2025 tax law (Public Law 119-21) never mentions section 280A, but section 70433 raised the Form 1099-MISC rent threshold from $600 to $2,000 for payments after 2025. As of October 28, 2026.
Key Takeaways
- The exclusion is a cliff, not a sliding scale. Section 280A(g) applies when the dwelling unit is “actually rented for less than 15 days during the taxable year”, which counts every renter, not just your business. At 15 days all the rent is income and expenses are divided between rental and personal use (IRS Publication 527 (2025), chapter 5). At $1,000 a day, 14 days is $14,000 tax-free and 15 days is $15,000 of taxable rent (our arithmetic).
- There are two taxpayers and two tests. You, the owner, exclude the rent under 280A(g)(2) and lose the rental deductions under 280A(g)(1). The business deducts the rent as “rentals or other payments required to be made as a condition to the continued use or possession” of property (section 162(a)(3)), and only the reasonable amount qualifies. The law gives no dollar figure per day.
- In T.C. Memo. 2023-105 (Sinopoli) the S corporation paid its three owners $96,400, $113,500 and $81,000 for 2015 to 2017 and the owners excluded it under 280A(g). The court allowed $6,000 for 2015 and $500 a month from January 2016 through September 2017, called that “actually generous”, and found no appraisal and no minutes, agendas or calendars.
- In T.C. Memo. 2023-140 the plan the owners bought assumed $2,000 to $2,500 a day for 14 days and suggested an appraiser and rates supported by independent comparables. They followed neither. The court found the payments were “unreasonable and something other than rent”, allowed none of roughly $308,000 of home rent (our arithmetic) and sustained the 20% penalty.
- The business pays you, so it files. Form 1099-MISC box 1 is required for rents of $2,000 or more paid in the course of a trade or business, and a payment to an individual shareholder is not covered by the exception for payments to corporations. The 2026 forms are due February 28, 2027 on paper or March 31, 2027 electronically.
- The tax saving is the owner’s bracket times the rent, nothing more. At 14 days and $1,000 a day the S corporation deducts $14,000: $3,360 at 24% or $5,180 at 37%, and 20% less if the section 199A deduction is fully available (our arithmetic). The saving is only worth keeping if the rent survives the reasonableness test.
CSV · 93 rows
Augusta rule: 280A(g) text, IRS Publications 527 and 587, 1099-MISC rent reporting, two Tax Court opinions and worked savings tables
93 rows: the statute (280A, 162, 267, 1402, 199A, 11, 1), IRS Publication 527 and 587 wording, the 1099-MISC rent rules after Public Law 119-21 section 70433, the rent claimed and allowed in T.C. Memo. 2023-105 and 2023-140, the 14-day versus 15-day arithmetic and a 24-row savings table at four daily rates (our arithmetic).
The statute, word for word
Section 280A starts by taking deductions away. Subsection (a) says that “in the case of a taxpayer who is an individual or an S corporation, no deduction otherwise allowable under this chapter shall be allowed” for a dwelling unit used as a residence. Subsection (g) then overrides it with the words “notwithstanding any other provision of this section or section 183”. The pieces that matter for a business owner are these:
| Piece | What the statute says | What it means for the owner |
|---|---|---|
| The trigger, 280A(g) | the 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” | The cap is 14 days in total, across every renter, not 14 days to your own company. |
| Your deductions, 280A(g)(1) | “no deduction otherwise allowable under this chapter because of the rental use of such dwelling unit shall be allowed” | No depreciation, repairs or utilities against the rent. Mortgage interest and property taxes stay where they were. |
| Your income, 280A(g)(2) | the income “shall not be included in the gross income of such taxpayer under section 61” | The rent is excluded outright, not deferred. |
| What a residence is, 280A(d)(1) | personal use for more days than “the greater of” “14 days” or “10 percent of the number of days” the unit is rented at a fair rental | A home you live in passes. A vacation home used 14 days or fewer may not (see the table below). |
| What a dwelling is, 280A(f)(1)(A) | “includes a house, apartment, condominium, mobile home, boat, or similar property” | A second home or a condo can qualify, not only a primary residence. |
| Who the business may be, 280A(a) | the general bar applies to “an individual or an S corporation” | The statute itself names S corporations, and both Tax Court cases below involve one. |
Source: 26 U.S.C. 280A(a), (d)(1), (f)(1), (g) (law.cornell.edu/uscode/text/26/280A), read October 28, 2026. The right-hand column is our reading.
Two taxpayers, two tests
The exclusion is half the transaction. The other half is the deduction the business takes, and the IRS and the courts test them separately.
| Side | Treatment | Authority | Where it goes wrong |
|---|---|---|---|
| Owner receives the rent | Excluded from gross income; not reported on Schedule E; mortgage interest and property taxes reported as normally allowed on Schedule A | 26 U.S.C. 280A(g)(2); IRS Publication 527 (2025), chapter 5 | A 15th rental day of any kind makes all of it taxable. |
| Business pays the rent | Deductible as rent only if ordinary, necessary and reasonable in amount, and the event or use actually happened | 26 U.S.C. 162(a)(3); T.C. Memo. 2023-105; T.C. Memo. 2023-140 | No appraisal, no comparables, no minutes, a rate set by a plan or a spreadsheet. |
| Timing of the deduction | For an S corporation, any shareholder is related to it, and a deduction may be deferred to the day the payee includes the amount | 26 U.S.C. 267(a)(2), (e)(1)(B)(ii) | An accrual-basis company that accrues rent and pays it later (the company in the first case used the accrual method). |
| Self-employment tax | Rentals from real estate are excluded from net earnings from self-employment unless received as a real estate dealer | 26 U.S.C. 1402(a)(1) | Our reading: the rent you receive is not self-employment income for you. |
Source: 26 U.S.C. 162, 267, 280A and 1402; IRS Publication 527 (2025); the two Tax Court opinions. The last column is our reading.
Publication 527 says what the owner does with the rent: if you use a dwelling unit as a home and rent it less than 15 days, “its primary function isn’t considered to be rental and it shouldn’t be reported on Schedule E (Form 1040)”. It does not use the name “Augusta rule”. The name is a nickname, and the IRS publication calls the situation “Used as a home but rented less than 15 days”.
Which business can pay you
The statute does not say who the renter must be. The facts of the cases and the structure of section 280A point one way, and where our sources do not settle it we say so.
| Payer | What our sources show | Open question |
|---|---|---|
| S corporation | Both Tax Court opinions involve one. 280A(a) names S corporations, and 280A(f)(2) counts personal use by any shareholder. Related-party rules in 267(e) treat any shareholder as related. | Reasonableness and records, as below. |
| C corporation | No opinion in our sources. The corporation would deduct under 162(a)(3) and its tax rate is 21 percent (26 U.S.C. 11(b)). | Our reading: the same reasonableness test applies. The Tax Court’s test in 2023-140 is whether the payment is “in fact rent and not something else disguised as rent”. |
| Partnership or multi-member LLC taxed as a partnership | No opinion in our sources. 267(e)(1)(B)(i) treats a person with a capital or profits interest as related to the partnership. | Our reading: part of the deduction flows back to the owner who receives the rent. |
| Sole proprietorship or single-member LLC taxed as a disregarded entity | The business and the owner are the same taxpayer, so there is no separate payer and no rent to deduct (our reading; we found no authority either way). | Do not assume the exclusion helps a business that files on your Schedule C. |
Source: 26 U.S.C. 11, 162, 267, 280A; T.C. Memo. 2023-105 and 2023-140. Cells marked “our reading” are not statements of the Code or the courts.
The cliff at day 15 and the residence test
Two counts decide whether 280A(g) applies. The first is total rental days, the second is your own personal days. Because the statute says the unit is “actually rented for less than 15 days during the taxable year”, a short-term rental booking in the same year counts against the same 14 days (our reading of the text).
| Facts for one home in one year | Rental days | Personal days | Result under 280A (our arithmetic on the statute) |
|---|---|---|---|
| Primary home, 14 days to your S corporation | 14 | 300 | Residence; rented under 15 days; rent excluded and no rental deductions. |
| Same home, 14 days to your S corporation plus 2 days on a short-term booking | 16 | 300 | Rented 15 days or more. All rent is income and expenses are divided between rental and personal use. |
| Vacation home, 14 days to your S corporation | 14 | 10 | Personal use of 10 days does not exceed the greater of 14 days or 1.4 days (10% of 14), so it is not a residence. 280A(g) does not apply and it is an ordinary rental. |
| Vacation home, 14 days to your S corporation | 14 | 20 | Personal use of 20 days exceeds 14 days, so it is a residence. 280A(g) applies. |
| Primary home, $1,000 a day | 14 or 15 | 300 | $14,000 excluded at 14 days. At 15 days $15,000 is taxable; at 24% that is $3,600, about the same as the company’s deduction at 24%, so the benefit is gone. |
Source: 26 U.S.C. 280A(d)(1), (g); IRS Publication 527 (2025), chapter 5, “Used as a home and rented 15 days or more”. Rows are our arithmetic.
What the Tax Court did with it, twice
Both opinions were filed in 2023 and both involved an S corporation that paid its owners for the use of their homes. They are the only Tax Court opinions on the arrangement that we found, and the court did not say that 280A(g) was unavailable. It said the rent was not shown to be reasonable.
| Item | T.C. Memo. 2023-105 (Sinopoli), filed August 14, 2023 | T.C. Memo. 2023-140, filed November 21, 2023 |
|---|---|---|
| Payer | Planet LA, LLC, an S corporation, accrual method, owned by three people (fitness-center franchise) | An S corporation wholly owned by two spouses |
| The arrangement | The company paid rent for business meetings held in the owners’ homes. The owners excluded it under 280A(g). | A plan bought for $50,000 told them to rent each home to the S corporation for a maximum of 14 days. |
| Rent deducted | $96,400 (2015), $113,500 (2016), $81,000 (2017); $290,900 in all | $119,000 (2014), $103,500 (2015), $35,000 (2016), $63,000 (2017); about $308,000 for the homes after removing $12,500 of equipment rent (our arithmetic) |
| Rent allowed | $6,000 for 2015 and $500 a month from January 2016 through September 2017, about $16,500, or 5.7% (our arithmetic) | $0 for the homes |
| Why | No appraisal; a rate of $1.83 a square foot from one owner’s own research; no “minutes, agendas, or calendars”; vague, unconvincing testimony. The revenue agent’s benchmark was about $500 for a full or half day of meeting space for 500 to 1,200 people. | No independent comparables and no expert evidence of fair rental value. The plan’s own advice to use a professional appraiser was not followed. The owners were related to the payer. |
| The court’s words | “It seems that petitioners adopted a tax savings scheme”; $500 a month was “actually generous” | Payments “unreasonable and something other than rent” |
| Penalties | None. The IRS did not determine any in the notices of deficiency. | 20% accuracy-related penalties sustained under section 6662(a), subject to the final computation |
Source: U.S. Tax Court opinions T.C. Memo. 2023-105 (Docket Nos. 10838-20, 10840-20, 26360-21) and T.C. Memo. 2023-140 (Docket No. 12520-19), read on CourtListener on October 28, 2026. We cite the case name of the first only because it is how the opinion is known; we do not describe the people. Arithmetic is ours.
Three points matter more than the dollar amounts. First, the court applied the ordinary business-expense test from section 162, not a special Augusta test: “Only the portion of an expense that is reasonable qualifies for deduction under section 162(a).” Second, it said that “the reasonableness concept has particular significance” in dealings between related parties, which is the situation of every owner who rents a home to his or her own company. Third, in the first case the court allowed something, because some meetings were proven, and the allowed rate was priced from real local meeting space. In the second, with no comparables at all, it allowed nothing.
What counts as reasonable rent
There is no per-day figure in the Code, the regulations we read or Publication 527. What there is:
- The test in Publication 527. “A fair rental price for your property is generally the amount of rent that a person who isn’t related to you would be willing to pay.” The publication writes that for rent that is too low, but the comparison is to “other properties that are similar to your property in your area”.
- The cases’ yardstick. The only number a court priced in our sources is the revenue agent’s meeting-space rate of about $500 for a full or half day, which the court used and then called generous for a home where “only small portions of the residences were used”.
- The thing missing in both cases. Evidence from outside the family: a written quote from a venue or an appraiser for comparable space for the same hours and the same headcount.
The use must also be real. In the first case the company “deducted rent expenses for three meetings per month, once at each residence” and the court found only one meeting a month proven. A rent invoice is not evidence of a meeting. Minutes, an agenda, an attendee list and a calendar entry are.
What the saving is, in dollars
The saving is the bracket on the rent that the company deducts and you do not report. These figures are our arithmetic for a 14-day rental at four daily rates, using the 24%, 32% and 37% brackets in section 1(j)(2). The “20% less” column assumes the section 199A deduction is fully available, which it is not for every owner: a deduction of 20 percent of qualified business income falls when the S corporation’s income falls, because qualified business income is the “net amount” of income less deductions.
| Daily rate | 14 days of rent | Saved at 24% | Saved at 32% | Saved at 37% | At 24% if the 20% deduction is fully available | At 37% if the 20% deduction is fully available |
|---|---|---|---|---|---|---|
| $500 | $7,000 | $1,680 | $2,240 | $2,590 | $1,344 | $2,072 |
| $1,000 | $14,000 | $3,360 | $4,480 | $5,180 | $2,688 | $4,144 |
| $2,000 | $28,000 | $6,720 | $8,960 | $10,360 | $5,376 | $8,288 |
| $2,500 | $35,000 | $8,400 | $11,200 | $12,950 | $6,720 | $10,360 |
Source: our arithmetic on 26 U.S.C. 1(j)(2) and 199A(a), (c)(1). Federal income tax only. State tax, the cost of documentation and the risk of disallowance are not included. The $500 row is the rate the court used in T.C. Memo. 2023-105; $2,000 to $2,500 are the rates the plan in T.C. Memo. 2023-140 assumed, and the court allowed none.
Read the table against the cases. A rate of $500 a day for 14 days is $7,000, and a court has priced meeting space at that figure. A rate of $2,500 for 14 days is $35,000, and a court that found no comparables allowed none of it.
Reporting after the 2025 law
Public Law 119-21 did not change section 280A. We searched the saved text of the law for “280A” and found no occurrence. What it did change is the information return that the business files for the rent it pays you.
- Threshold. Section 70433 amended section 6041(a) “by striking ‘$600’ and inserting ‘$2,000’”. The Form 1099-MISC instructions say rents of $2,000 or more go in box 1, and the threshold is indexed from calendar year 2027.
- Who files. The payer files only when payments are made in the course of its trade or business, and a payment to an individual shareholder is not within the exception for payments to a corporation. Your own company therefore files a 1099-MISC to you for rent of $2,000 or more.
- When. For 2026 payments the instructions give February 28, 2027 on paper or March 31, 2027 electronically, with the next business day if the date falls on a weekend or holiday.
- What it creates. A 1099-MISC showing rent you did not report on Schedule E. Publication 527 says you are not required to report it, so keep the rental agreement, the invoice and the records that explain why the amount is excluded (our reading).
Augusta rule, home office or ordinary rental
The home appears in three different parts of the Code. They are alternatives, not layers.
| Route | Test | What you get | Where to read it |
|---|---|---|---|
| Rent the home to your own business for under 15 days | Home used as a residence; rented fewer than 15 days in total; rent that is reasonable and a real business use | Rent excluded from your income; business deducts the rent; you take no rental deductions | 26 U.S.C. 280A(g); Publication 527 (2025) |
| Home office deduction | Part of the home used “exclusively” and regularly for the business as principal place of business or to meet clients | A share of home expenses, or $5 a square foot up to 300 square feet under the simplified method | 26 U.S.C. 280A(c)(1); Publication 587 (2025) |
| Rent it 15 days or more | Rented at a fair rental for 15 or more days; personal use decides whether it is a residence | All rent is income; deductions follow the personal-use rules | 26 U.S.C. 280A(d), (e); Publication 527 (2025) |
Source: 26 U.S.C. 280A; IRS Publications 527 and 587 (2025). The home office route requires a space used only for the business; the Augusta rule does not require that.
For the 15-day-or-more route, see our guides to rental income tax and the short-term rental tax rules. Because 280A(g)(1) allows no deduction “because of the rental use”, nothing is depreciated or allocated to those 14 days (our reading). The interest and taxes on the mortgage stay on Schedule A as they were; see our guide to the mortgage interest deduction limit. If you hold investment properties inside an entity, see our guide to an LLC for rental property, and note that the pass-through income the rent deduction reduces also feeds the section 199A deduction.
What a reader can do with this
- Count your days first. Add every day the home is rented to anyone in the calendar year. At 15 the exclusion is gone, and with it the benefit.
- Find the right payer. The cases we read are S corporations. If your business is a sole proprietorship or a single-member LLC on Schedule C, there may be no separate payer at all.
- Price it from outside the family. Get a written quote or an appraisal for comparable space for the same hours and headcount, and keep it. This is the document both courts said was missing.
- Prove the use. Agenda, attendee list, minutes and a calendar entry for each day, created at the time.
- Pay and invoice in the year. Use a written rental agreement signed before the event, pay by bank transfer in the same tax year, and expect the 1099-MISC if the year’s rent is $2,000 or more.
- Weigh the dollars against the risk. A $14,000 deduction at 24% is $3,360 of federal tax. A disallowance can bring a 20% accuracy-related penalty on the underpayment, as in 2023-140.
This is analysis of public documents, not investment, legal or tax advice.
FAQ
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Sources, read and saved on October 28, 2026: 26 U.S.C. 1, 11, 61, 162, 199A, 267, 280A and 1402 (law.cornell.edu/uscode); IRS Publication 527 (2025) and Publication 587 (2025) (irs.gov); Instructions for Forms 1099-MISC and 1099-NEC (irs.gov); Public Law 119-21, section 70433 and the full text searched for section 280A (govinfo.gov); U.S. Tax Court, Sinopoli v. Commissioner, T.C. Memo. 2023-105 (August 14, 2023) and T.C. Memo. 2023-140 (November 21, 2023), as published on CourtListener. Figures marked “our arithmetic” or “our reading” are CrowdfundedWealth’s and are not statements of the Code or the courts. This is analysis of public documents, not investment, legal or tax advice.
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