How To Benefit From Augusta Rule As A Homer Owner In 2023
Have you every heard about the rule where you can save hundreds of Dollars from taxes as a Home Owner?
Yes, It is known as the “Augusta Rule”.
The Augusta Rule is the perfect tax saving strategy for Rental property owner to rent their home for short-term rentals. This exemption can be used as a wonderful tool for small business owner because they do not have to pay taxes on rental income earned for 14 days or less in a year.
However, this rule can be applied in different scenarios and will be used anywhere in United States only. So, if you thinking about renting your apartment or house for 14 days or less in a year then keep reading.
Why is It called Augusta Rule?
The term “Augusta Rule” was originated due to its connection with the city of Augusta, Georgia. Augusta exemption is the nickname for Section 280A(g) of the Internal Revenue Code which was applied to accommodate homeowners in Augusta who rented out their properties during the annual Master Gold Tournament.
However, it is crucial to understand that this rule is not limited to Augusta or the Master Golf Tournament. It can be applied to any homeowner who are renting out their personal residence for 14days or less in a year.
How To Calculate Your Tax Free Rental Income?
To calculate your income from rental property, firstly you need to track how much rental income you are making per month and the expenses. You can also include money earned through offering services like Airbnb and VRBO.
To Calculate the Tax Implication under Augusta Rule, follow these steps:
- Determine the number of days you will be renting out your place.
- Calculate the income you have earned from your short-term rental property.
- Check if you meeting the eligibility criteria
- Report the income earned for taxes only if you are exceeding the minimum 14 days threshold.
Additionally, it is crucial to note that if you are claiming any deductions related to rental income and expenses, you must report it on your tax return.
What Is the requirement of Augusta Rule?
The requirement of Augusta Rule to pay no tax on Rental Income form personal properties are:
- To be eligible for Augusta Rule exemption, you have to rent you the property that you personally use. For example, you can use your apartment, townhouse, house, condo, boat but you cannot use properties that is specifically purchase for making money.
- It also exempts properties that are owner’s personal homes and vacation homes.
- The 14 Day rule applied to cumulative date. For example, if you planning to rent your property to different people then you are still eligible to get tax benefit only if the total number of days is not exceeding the mentioned limit.
- The rent must be reasonable depending on the location and what the market is offering. For example, if you are living in Michigan near the Michigan Stadium, you home rent can be anywhere between $100 – $300 depending on what the hotels in your area are charging. You can also charge extra amount if the demand in your location is high which will adds up to your earning by 1,000 to 3,000.
Note – As long as your rent prices are comparable with the market price, you are exempted from paying taxes.
How To Report Short-Term Rental Income Under Augusta Rule?
You can report your short-term (if exceeding the 14 days limit) rental income directly in your Tax Returns. However, it is important to note that you carry all the necessary income and expenditure related documents to proof your claim.
Final Words
If you are a business owner or own a house, then Augusta Rule IRS exemption can be a great to save money. Make sure you are following all the rules and regulations before moving forward with your taxes.
Finally, keep in mind that the tax laws can change any time, so consulting with tax professional or refer to Internal Revenue Service to ensure that you are following the correct procedure correctly. Also, check whether the local government have any applied any restriction on these laws.
