Welcome to the Tax Insights Podcast, where we break down complex tax topics into bite-sized how-tos. In this episode, Jeff Dvorachek explores the Augusta Rule. Join us as he breaks down how you can earn tax-free income during events like the Masters or the NFL Draft. Let’s dive in!
On today’s episode of Tax Insights, Jeff simplifies the Augusta rule. Discover how this special tax provision, linked to Augusta, Georgia, and the Masters, benefits homeowners nationwide. Jeff explores the conditions for tax-free rental income, explaining how you can maximize short-term rentals during events like the NFL draft. Join us as we uncover the rules and opportunities of the Augusta rule to empower your financial decisions. Let’s jump in!
Host: We are talking about the Augusta rule today. And when I think of the Augusta rule, I just think of Augusta Gulf and the Masters. So, tell me, is this relating to the golf and the Masters?
Jeff: You know what, Terry, you hit it spot on. It’s really exactly to do with golf and the Masters.
Host: Really? Wow, I did not think you were going to say yes. Talk to me about the Augusta rule.
Jeff: So, you know, there’s all these little tax rules that are embedded within the bigger rules at the IRS, right? And back in the ’70s, the people of Augusta, Georgia, as they’re doing the Masters said, “Hey, you know, we rent our houses out for a short period of time while people are in town for this golf tournament.”
Host: Yeah.
Jeff: You know, get the lobbyists involved. “Is there any way we can make this income tax-free?” And guess what? They ended up making rental income tax-free under the Augusta rule.
Host: Unbelievable. So is that only in Augusta, Georgia? Or is this something that is now federal and nationwide? Like walk me through this because if I’m understanding correctly, you’re saying rental income is not taxable income.
Jeff: Exactly. So it started out with the people of Augusta, Georgia, but this is available to anybody. So whether you have an event, you know, say you’re in Indianapolis during Indianapolis 500, right? Say you’re in Green Bay during the draft.
Host: Well, that’s what I’m thinking, you know, because I think a lot of people here locally are definitely going to be looking and considering renting out their house for the draft.
Jeff: And that’s exactly right. So the way the rule works is that as long as you rent your house—and it’s got to be your house, your vacation home, you know, or something that you don’t use for business purposes. So it’s gotta be a personal use building. As long as you rent it for less than 14 days over the course of one year, you do not have to report the income on your return.
Host: Gotcha. So I think there’s the kicker. So for those that have Airbnb rentals and things like that, that use this as secondary income, shall we say, that is where you have to be careful that it is less than 14 days.
Jeff: Right. And it’s not 14 consecutive days. It’s 14 days over the calendar year.
Host: Okay. So if you rent it for seven days today and eight days, like later in the year, you’re outside of that rule. So do you have to then keep track even if it’s less than 14 days of how many days you actually rented? I mean for example, how would one know if it’s 14 days, 15 days, 21 days, 6 months?
Jeff: Yeah, normally if you’re going to rent your house out to a stranger, you’re going to have some kind of a contract. And so that contract is pretty much going to stipulate, you know, what the terms of it are, and that’ll probably be your biggest driver. Now, when I’m talking about personal residence, it can be a number of different things. So, I mean, it can be your home, like I said, second home, it can be an apartment, it can be a condo. It can even be a boat, Terry. As long as your boat is big enough to have places where you can cook food and have bathroom facilities, a boat counts as a house for this purpose.
Host: Interesting. ‘Cause I was just thinking about, you know, RVs and things like that in case you want to rent that out for someone, especially coming up for the draft next year. That is a possibility. But again, 14 days. Now, let me ask you this, Jeff. Is that 14 days at that one property or 14 days in that boat or that RV, all collectively, walk us through that.
Jeff: Right, so if it’s a boat or a cabin or something like that, it’s 14 days over the course of the year. So just that one item or that one piece of property.
Host: So you could do 10 in a boat, 10 in an RV, 10 in your home and be okay?
Jeff: That is correct. It’s per facility from what I understand.
Host: See, just another reason to love golf and love the Masters. You know, thank you to Augusta for helping us out with this.
Jeff: Isn’t that it? And sometimes it’s good to talk about the times where you can actually get something coming out of the climate.
Host: Yeah, a tradition like no other. Jeff, how do listeners reach out to you guys over at Hawkins Ash?
Jeff: I would go right to our website, which is HawkinsAsh.CPA and go to that CPA-HQ section.
