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How You Can Enjoy the Augusta Exemption
As viewers watch the Masters golf tournament on TV, they likely are captivated by the stunningly beautiful course and recall Tiger Woods’ unlikeliest comeback win. What viewers probably won’t be thinking about is the tax-free rental income available to homeowners nearby.
The “Augusta Exemption” is the popular name for Internal Revenue Code Section 280A(g). This exemption survived the federal tax reforms enacted with the Tax Cuts and Jobs Act of 2017 and provides a homeowner with a short period of tax-free rental income per year.
Rental income for this short period of time is considered a “de minimis rental” for tax purposes.
Section 280A(g) states that “if a dwelling unit is used during the taxable year by the taxpayer as a residence and such dwelling unit is actually rented for less than 15 days during the taxable year, then … the income derived from such use for the taxable year shall not be included in the gross income.”
The Augusta portion of the name refers to the location of the famous golf course where the Masters is played, – Augusta, Georgia. Many homeowners who live near the course take advantage of the event’s popularity to rent their homes to golfers and fans during the tournament.
But you don’t have to live near Augusta National to take advantage of this rule.
The rental income collected for fewer than 14 days is considered not taxable by the federal government, but no home-related expenses are deductible. This exemption only applies if you rent your home for fewer than 14 days per year.
There is no effect on the tax deductibility and limitations associated with home mortgage interest and property taxes on the home.
And there’s no limit on the amount in tax-free cash.
If you have property that’s not being used, you can consider this tax break from the IRS that even includes second homes. This income can be used to pay for annual taxes or upkeep on a second home or investment property.
Of course, this exemption is not limited to golf tournaments. Other possibilities include homeowners who live near concert and sporting venues or major events such as a papal visit, political convention or Super Bowl.
Also, the 14-day exemption does not have to be for consecutive days, so if your home is convenient to a major events venue, you can rent over possibly seven weekends.
For example, if you live near a popular wedding venue, you can rent to wedding guests and bridal parties for seven weekends – all free of federal income tax.
Arranging short-term rentals to generate extra income while you are not in your home may be easier using home rental internet services like Airbnb, HomeAway and Vrbo. These services generally have a fee to list your home and charge a commission when you have a booking.
Investors and homeowners should check with the local municipality so you comply with any local regulations regarding short-term rentals. If it is your intention to only take advantage of the 14-day exemption, hopefully you won’t fall within any local real estate limitation rules.
Pam Harrington, of Pam Harrington Exclusives, has more than 30 years of real estate sales and rental experience on the lovely beach islands of Kiawah and Seabrook in South Carolina. During the Senior PGA Championship in 2007 and the PGA Championship of 2012, she found homeowners who did not ordinarily rent their homes were happy to receive premium-rate, tax-free rental income during the tournaments.
Harrington is currently working with owners who plan to rent their homes during the PGA Championship in May 2021 at Kiawah.
Here is the key takeaway: If you live in a desirable neighborhood for high-demand events, it may be advantageous to go on a brief vacation or weekend away from home while collecting tax-free rental income.
That way, you’ll likely have earned enough money to pay for that vacation and then some.
