You may have heard about a little-known tax rule that lets you earn rental income completely tax-free, as long as you rent your home for 14 days or fewer in a year. It sounds like a rumor, or one of those “TikTok tax hacks” that’s too good to be true. But this one’s real.
It’s called the Augusta Rule; it’s named after Augusta, Georgia, where residents started renting their homes during the Masters golf tournament. As demand (and rental rates) surged, the IRS responded with a carve-out: rent your personal residence or second home for 14 days or less in a calendar year, and you don’t need to report that income on your federal return.
It’s a rare exception in the tax code, one that can legitimately put thousands of dollars in your pocket, tax-free. But like most things involving the IRS, there are rules. And if you miss one, you lose the benefit entirely.
How does the Augusta Rule work?
If you rent out your home for 14 days or fewer during the year, the IRS doesn’t require you to report that income. It doesn’t matter whether it’s your primary residence or a second home, or whether you charged $200 or $20,000. As long as you stay under the 14-day limit, the income is completely excluded from your federal return.
There’s one important tradeoff: you can’t deduct any related expenses either. The IRS treats it like the rental never happened. That’s why this rule stands out. It’s not a loophole, it’s a carve-out written directly into the tax code.
Stay under the limit, follow the rules, and the income stays off your tax return.
Which properties qualify for the Augusta Rule?
The Augusta Rule covers any personal-use dwelling. That includes:
- Your main home
- A second home, like a vacation house, lake cabin, or beach condo
- Any other residence you live in at some point during the year
To qualify, the property must be used by you or your family for personal stays. Occasional vacation use counts. The rule does not apply to full-time rental properties or investment-only homes you never use yourself.
Each qualifying property gets its own 14-day threshold. That means you can rent out your main home for up to 14 days without reporting the income, and do the same with your vacation home, separately. As long as each property is rented for 14 days or fewer in the year, and used personally as a residence, the rental income from each one is excluded from your federal tax return.
If you go over the 14-day limit for any single property, even by one day, that property’s rental income must be reported in full and different tax rules apply. The 14-day cap resets each calendar year.
Does it matter who rents the home?
The IRS cares about both who is renting the property and how that rental is handled, from the rate you charge to the documentation you keep. If the arrangement looks more like a favor than a business transaction, it could disqualify the income from being excluded. Here’s how different situations are treated:
- Unrelated guests
This is the simplest option. As long as you charge a fair market rate, the income can qualify for exclusion under the Augusta Rule. - Family members
Members of your family can rent the property too, but the arrangement must be legitimate. That means charging the same rate you would charge a stranger. If you give them a steep discount or treat it like a favor, the IRS may consider it personal use, and that disqualifies the income from exclusion. - Your own business
Your business can rent the property under the Augusta Rule, but this one requires extra care. The rental must serve a legitimate business purpose, like hosting a board meeting or off-site retreat. You’ll need formal documentation that shows the rate charged is consistent with local market values, and that the transaction is at arm’s length. These situations often receive more scrutiny, so keep records in order.
The more closely connected the renter is to you, the more important it becomes to document everything clearly.
How strict is the 14-day rental limit?
With the Augusta rule, the 14-day limit is firm. There is no wiggle room.
If you rent a property for 14 days or fewer during the calendar year, you can exclude that income from your federal tax return. However, if you rent for even one additional day (15 days total), you lose the exclusion entirely for that property. In that case, all the rental income must be reported. You can deduct some related expenses, but the reporting becomes more complex, and the income is taxable.
To stay eligible for the Augusta Rule, count your rental days carefully and stop before you hit day 15. Once you cross that line, the benefit is gone for the entire year.
What is fair market rent?
Fair market rent is the amount someone would reasonably pay to rent a similar property in your area during the same period. The IRS expects this number to reflect real market conditions, not a discounted rate you give to family or your own company.
Charging below market value can turn a rental arrangement into “personal use” in the IRS’s eyes, which means you lose the tax-free treatment. To protect your position, keep thorough documentation:
- Save online listings of comparable properties in your area
- Create and retain a written rental agreement for each booking, even with relatives
- Keep detailed payment records showing how and when the renter paid
Good records give you a strong defense if the IRS ever asks you to explain how you set your rates.
How does personal use work?
To qualify under the Augusta Rule, you must use the property yourself for more than 14 days in a year, or more than 10% of the total days you rent it, whichever is greater.
For example, if you rent the property for 10 days in a year, you need to use it for personal purposes at least 14 days to meet the requirement.
“Personal use” includes:
- Living in the home
- Taking vacations there
- Letting family or friends use it without paying rent
If your property doesn’t meet the personal-use threshold, it no longer qualifies for the Augusta Rule. That means the rental income becomes taxable, and different tax rules apply.
Recordkeeping for the Augusta Rule
The IRS doesn’t ask often, but when it does, you’ll want to be ready. That means keeping a clear, complete record of every rental detail. You should log:
- The exact dates the property was rented
- Who rented it and how the arrangement was made
- How you determined the rental rate
- Copies of signed rental agreements and proof of payment
Hold on to these records for at least three years after the return is filed. That’s the standard IRS audit window and having documentation on hand gives you peace of mind if questions ever come up.
Will my state still tax this income?
It’s possible. Some states follow the federal tax treatment and honor the 14-day rule. Others do not and may tax that income even if the IRS doesn’t.
Before you assume the money is fully tax-free, check your state’s rules or talk to a local tax pro. It’s especially important if your property is in a high-tax state or if you’re earning a large amount from the rental.
When should you call a tax pro?
The Augusta Rule can be straightforward, but not every situation is. It’s worth bringing in a tax professional if:
- You plan to rent to your own business or to family
- You are unsure what counts as fair market rent
- Your property is in a state with tax laws that differ from federal rules
- Anything about your setup feels unusual, gray area, or hard to document
In these cases, quick advice from a tax expert can keep a small mistake from turning into a bigger issue.
The Bottom Line
If you stay under the 14-day limit, charge a fair rate, and document everything properly, the Augusta Rule is a rare opportunity to earn tax-free income on the books, but the simplicity only holds if you follow the rules closely. One extra rental day or a discounted deal with a relative can knock you out of eligibility fast.
If you’re unsure how to apply the rule to your specific situation, or you want help setting up the right documentation, talk to a professional. You can schedule a free call with our team today. We’ll help you navigate the details and make sure you’re using the rules to your full advantage.
