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How to Deduct Your Home With the Augusta Rule Tax Loophole ( up to 14 days per year) - YouTube
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have you ever wondered how wealthy
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entrepreneurs lower their tax bill every
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single year
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well you're in luck because today i'm
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going to share with you one crazy tax
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loophole
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that they take advantage of every single
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year called the augusta rule
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hey my name is brian nguyen and i'm a
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cpa and a tax advisor with clever
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profits an online accounting firm
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for agencies coaches and creators if
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you're new here please go ahead and hit
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the like share and subscribe buttons
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down below
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for more weekly tax and finance updates
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so today i'm going to share with you
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the crazy tax loophole that is called
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the augusta rule
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and it starts with a small town of
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augusta georgia where they host the
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masters tournament
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every single year and what they do is
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residents watch you rent out their
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places
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for a week or more at a time to
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attendees and participants of the
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masters tournament
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and collect pretty handsome sum of
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rental income
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along the way now the problem with that
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is that they have to include the rental
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income
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in their tax return which is a no-go
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because now they're gonna have to pay
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taxes on it
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so at some point in time congress
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decided you know what we're gonna give
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these people a break
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and we're gonna let them exclude that
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income as long as it's less than 15 days
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in a year that they're renting their
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home that they live in
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to these individuals so in short as long
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as you rent your home
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that you live in for less than 15 days
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in a year you don't have to include the
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rental income
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you lose that on the tax deductions but
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hey that's okay because at least you
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don't have to include the income
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and all as well so how does this
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actually apply to you
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if you're a business owner who's trying
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to take
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and expand your tax deductions well
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there's nothing in the rule that says
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you can't rent it to a business
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and have the business take a tax
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deduction for it as long as it's a
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legitimate trade or business
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purpose under 162 ordinary necessary
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and reasonable so the key here is
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well why don't you just rent your
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primary residence to your business for a
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legitimate business purpose
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and your business can take a tax
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deduction for it for
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up to 14 days in a year and you don't
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have to include
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the rental income on your personal tax
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return
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boom massive loophole right there and so
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a lot of business owners have
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gotten creative with how they apply this
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and keep in mind this has to be
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legitimate
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otherwise you can't take a deduction for
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it so it has to be a true
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business purpose and i'm going to go
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over a few different use cases that we
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use
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with our clients right now the first one
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is if you're on youtube
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or you're doing any kind of video
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advertising or you're doing any kind of
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online coaching that requires a full use
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of your space and a camera
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like a production and there's nothing
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that says that you can't
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have your business rent out your space
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for a day in order to do any kind of
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video related production
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in fact i'm doing a video right now and
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i'm probably going to use the augusta
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rule
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and take advantage of that because i'm
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going to use the entire space in order
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to actually film this video and get it
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online
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for my business so that's an example of
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a business use case where you can have
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your business
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pay you for your space and your business
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can take a deduction for it as long as
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it's less than 14 days a year
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then you can exclude the income another
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use case
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is if you host events at your home kind
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of like a mastermind
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where you use your entire space you
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invite attendees over
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and they use your space in order to
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actually facilitate your mastermind and
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this is really common for a lot of our
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clients who operate
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in the online coaching space and it's
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huge and can save you a lot of money
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because you don't have to go out
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to another vendor off-site and pay them
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for it why not just pay yourself
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out of your business funds instead and
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then your business can take a deduction
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for it and you don't have to include the
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income
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and they'll as well as long as it's 15
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less than 15 days in a year
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so those are two really cool use cases
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the last case is a little bit less
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common for our clients because most of
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our clients own their business outright
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but if you have a couple other
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shareholders in your business and you're
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having a shareholder meeting
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and you invite them over like if your
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spouse is a shareholder for example
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then you can use your your home and your
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space to host your board meetings or
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whatever
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and you can have your business pay for
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it and take a deduction so
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those are all really cool examples of
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how you can have your business
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with a legitimate business purpose pay
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you for your space
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and your business can claim a benefit
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and as long as it's less than 15 days in
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a year i'm going to continue stressing
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this
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you're going to get a tax deduction and
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you can exclude the income on your
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personal tax return
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so what do you actually need in order to
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facilitate
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taking this tax benefit and not having
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to include it in your income
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under the augusta rule well it goes back
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to making sure that you actually have a
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legitimate business purpose in order to
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actually claim the deduction at the
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business level
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but what a lot of people forget is that
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you need to actually have a transaction
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between
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one party to another i.e your business
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to yourself
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so you actually need to have a business
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that is operating as its own
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tax entity which requires either an s
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corporation
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a partnership or c corporation you
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cannot do this with a disregarded entity
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so single member llcs that haven't
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elected out of their default
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classification
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will not have this applied to them
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because you can't have a transaction
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with yourself
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which is what a disregarded entity kind
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of is so it's got to be a separate
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regarded entity which
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means that s corporation owners have an
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advantage here because they can take
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advantage of
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the s corporation rules and also look at
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the augusta rule and apply that on top
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so if you're looking into an s
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corporation election that's definitely a
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more favorable favorable
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argument for having one the second thing
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that you need is to make sure that
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the price is reasonable you can't just
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rent it out for an extraordinary amount
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that's not consistent with local rental
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prices in your area
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for your space for the day how do you
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know what a fair rental price is that's
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a great question you get that all the
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time
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well one way to look is to look on
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airbnb and see what an equivalent unit
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for your space would cost
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for the day or go to vbro or any other
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kind of third party provider where
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you can look and check rental prices in
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the area and have some documentation and
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support so
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when you're claiming the seduction it's
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not bogus and you can provide that
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information
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to the internal revenue service if you
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were ever to get audited
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the last thing that we want to make sure
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of is that you're actually transacting
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with your business when you do this
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which means that
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you need to have an official invoice
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that shows and documents today
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the description of what's happening and
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how much you're charging your business
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for the full benefit of their rental
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and to make sure that your business
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actually pays you for it in order for
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the transaction to be legitimate
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remember businesses can't claim a
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deduction unless there's a cash basis
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outflow which means that
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they need to actually pay your invoice
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in order for the deduction to show up in
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their books and ultimately
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be claimed on the s corporation tax
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return so it can't just be something
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fictitious that you do
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at the end of the year after the fact
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you've got to make sure that you're
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you're adequately keeping records of
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this invoicing your business properly
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making sure that your business is
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claiming the full extent of the benefit
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along the way by actually paying you for
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it
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the last thing you need is to make sure
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that you file a 1099 misc for the rental
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income at the business level
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making sure the irs is aware that you
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have some rental income and that you're
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meeting that requirement
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and that you're excluding that income on
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your schedule e
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because again it's excludable income and
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your business will take a deduction for
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it
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whatever tax form it files so if it's a
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s corporation it's going to be the 1120s
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if it's a partnership it's going to be
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1065 and if it's a c corporation
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it's an 1120. so those are the different
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options
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and in order to take the benefit you
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have to make sure that you meet every
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single one of those requirements and
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ultimately this can easily be
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a thousand or two thousand dollars back
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in your pocket at the end of the year or
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more depending on how much you actually
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rent
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your space to your business for its full
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value
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so if you have any questions on the
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augusta rule please hit us up drop a
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note in the comments down below
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and if you want to learn more about
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these awesome tax strategies that you
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can use in your online business
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then you're going to want to watch the
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thanks for watching
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if you liked what you hear and you want
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to take advantage of more tax strategies
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we have so many more videos
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on the channel that are going to be
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coming out explaining how we help our
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clients save
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tons of money and you can check out the
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