How the Augusta Rule Works for Small Business Owners

The Augusta Rule lets small business owners rent their home to their business for up to 14 days a year, creating a business deduction without taxable rental income. To be defensible, the owner must fulfill certain criteria and keep strong, contemporaneous records.

The Rule Itself Is Simple. The Mistakes Are Not.

The Augusta Rule comes up a lot in conversations with small business owners.

It’s usually after someone hears about it online. Or, sometimes after they’ve already tried to use it.
When used correctly, the Augusta Rule can allow certain tax-free income and a business tax deduction. When misunderstood or poorly documented, it becomes an audit magnet. The difference comes down to intent, timing, and records.

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Why This Matters For Small Business Owners

The Augusta Rule allows a business to rent the owner’s home for a limited number of days without creating taxable rental income for the owner. That can be valuable.

But this rule is narrow by design. It was never meant to be a casual write-off or a last-minute fix. Most problems arise not because the rule is complicated, but because people assume it’s more flexible than it is.

Think of it as a focused, limited tax tool: helpful when done right, expensive when done wrong. Lettuce is built around that reality, helping businesses-of-one use strategies like this with clean documentation, clear intent, and audit-ready records instead of guesswork.

What The Augusta Rule Allows

Under the Augusta Rule, a business may rent the owner’s home for up to 14 days per year. When the requirements are met:

• The rental income is not taxable to the owner

• The business may deduct the rent as a business expense

This is not a home office deduction. It is a short-term rental arrangement between the business and the homeowner. The distinction matters.

Who It Works For — And Who It Doesn’t

Three things must be true for the Augusta Rule to work:

• You must own the home

• The rental must serve a legitimate business purpose

• The arrangement must be properly documented

Renters do not qualify. Casual or personal use does not qualify. And “because I heard it works” is not a business purpose.

A Common Myth: “It Doesn’t Work If I Already Have A Home Office”

This concern comes up frequently, and it’s often misunderstood.

Having a home office does not automatically disqualify you from using the Augusta Rule. The issue isn’t whether the same property is involved. In case law, the issue is not whether the same property is involved, but whether the rental arrangement is clearly defined, properly documented, and defensible.

In cases where the Augusta Rule failed, the problem was rarely the physical space. It was the lack of contemporaneous records explaining why the home was rented, what portion was used, and how the rental price was determined.

In other words, the problem wasn’t overlap. It was documentation.

Documentation And Intent Matter

The IRS focuses both on how much rent was paid and how it was calculated, and on whether the arrangement makes sense.

Strong Augusta Rule documentation includes:

• A clear business purpose for each rental day

• Notes or minutes created at the time of the meeting

• A reasonable, supportable, fair market rental rate

The better the records, the less the rule looks like a loophole and the more it looks like a legitimate business transaction.

This is where automation pays off: with Lettuce, your business payments, receipts, and notes can be tied together in an audit-ready way, instead of living across random folders, email threads, and spreadsheets.

Lettuce’s system helps you: automatically categorize payments as rent, attach receipts and meeting notes, store fair-market-rate support, and keep everything timestamped so you can prove your intent and your math if the IRS ever asks.

A Real-Life Snapshot

One business owner used the Augusta Rule to hold annual planning meetings and vendor strategy sessions at their home. Each meeting had an agenda, notes, and a documented rental rate based on comparable local venues.

Another tried to apply the rule retroactively at year-end with no records, no meeting notes, and a round number for rent.

Both were audited.

Only one result held up. That meant tax, penalties, and interest for the taxpayer who lost the audit.

The Augusta Rule didn’t fail. Execution did.

This Is A Planning Tool, Not A Loophole

The Augusta Rule works best when it’s planned ahead of time and treated like a real business transaction. When it’s forced after the fact, it tends to unravel quickly.

Used correctly, it’s clean and defensible. Used casually, it’s neither.

Augusta Rule for Small Business Owners: Frequently Asked Questions (FAQs)

Can renters use the Augusta Rule?

No. The Augusta Rule applies only to homeowners. Renters cannot rent a property they do not own to their business under this rule.

Do I need to actually hold a meeting?

Yes. The rental must serve a legitimate business purpose. Examples include an annual planning meeting, a strategy session with customers or vendors, or a formal meeting with professional advisors. The key is that the meeting is real, business-focused, and documented.

How much rent can my business pay me?

The rent must reflect fair market value. This is typically supported by comparing similar short-term rental rates in your area, such as conference rooms, event spaces, or short-term rentals for comparable rental amounts. Document how the rate was determined and keep that support with your records.

Lettuce makes it easy to attach that support to your transactions and see exactly how much you’ve paid year-to-date, so you don’t blow past the 14-day limit or lose track of your own paper trail.

If you’re a business-of-one and want to explore whether the Augusta Rule fits into your overall tax strategy, connect your business to Lettuce and let the system handle the tracking, documentation, and audit defense while you focus on earning. Get started today!