During the first full week of April, the Masters Tournament is held in Augusta, Georgia. There, thousands of golf enthusiasts gather to watch one of the world’s most famous sporting events. Augusta is a fairly quiet southern town during other weeks of the year, but during Masters Week it transforms into a city filled with tourists in need of a place to stay.
Fortunately, homeowners in the Augusta area open their doors to renters, and often earn a lot of money in return. Thanks to the little-known “Augusta Rule,” the income earned from these renters can be tax-free.
We will introduce how the Augusta Rule works and how you can earn tax-free income by renting out your home.
What is the Augusta Rule?
The Augusta Rule is an IRS regulation that allows homeowners to rent out their homes for up to 14 days each year without reporting the rental income they receive on their personal tax returns. The rules date back to the 1970s, when Augusta residents wanted to avoid tax hassles when renting their homes during the Masters.
This tax exemption is widely available in Augusta, but is available to anyone in the United States and is especially beneficial for homeowners in smaller cities who host large events. Here are the details of how the exemption works:
- The home you are renting must be your residence, but it does not have to be your primary residence. This means that holiday homes are also exempt.
- If you rent your home for more than 14 days, you will be subject to the following taxes: all Of the rental income earned during the year.
- There are no income limits for the deduction.
- The number of days you rent your home does not have to be consecutive, so the income is tax-free as long as the total number of days you rent does not exceed 14 in a year.
- Business owners may be able to take advantage of this exemption and rent out their home to their business for meetings, but be sure to keep detailed records with the IRS and charge competitive rates based on the current market. Please try to do so.
How to rent a house and earn tax-free income
Many people consider investing in rental real estate as a way to generate passive income. However, these investments require a lot of effort to manage, so they may not be as “passive” as people expect.
But if you’re not thinking about turning your home into a full-time rental property, you can take advantage of the Augusta Rules to earn additional income that’s tax-free.
Homeowners often spend most of their time elsewhere, so a vacation home is a perfect destination for this. Either way, renting out your property when you won’t be there can provide you with the income to pay for renovations, property taxes, and anything else you need. As long as his annual rental period is less than 15 days, his rental income is tax-free.
Things to keep in mind when renting a house for less than two weeks:
- Cleaning fees will likely need to be paid multiple times, and if you have multiple renters, you will need to pay them multiple times.
- Make sure your rental agreement states who is responsible for any damage to your home or property.
- Check your homeowners insurance to see if your policy covers short-term rentals. You may need to purchase additional coverage or notify your insurance company of your plan.
imbalance between supply and demand
The main reason Augusta is an attractive rental location for homeowners is because there aren’t enough hotel rooms in the city to meet demand during Masters Week. This imbalance between supply and demand caught the attention of legendary investor Warren Buffett in 2014.
“Augusta can’t size the hotel industry around Masters, and Masters isn’t going to move anywhere else,” Buffett told shareholders at Berkshire Hathaway’s annual meeting in Omaha, Nebraska. he said. “There are some events like that, but not that many.”
Omaha faces similar challenges in hosting the Berkshire tournament, but it is primarily a one-day event, whereas the Masters is held throughout the week, including practice round days.
Stacey Hayden, vice president of Tournament Housing, said weekly rental prices for the Masters have been rising each year, and many Augusta residents are using the rental income they earn during the Masters to cover their annual mortgage and property taxes. He says he can pay most of the bills. & Events is a hospitality agency that connects rental homes and homeowners in the Augusta area.
Hayden said weekly rental prices range from about $4,500 to $150,000, depending on the property, location and amenities. A typical 3.5- to 4-bedroom home costs between $10,000 and more than $15,000, but homes with private bathrooms come at a premium. Corporate renters can include groups that don’t all know each other, Hayden said.
All Augusta schools schedule spring break the week of the Masters, and include the Monday after the tournament in their spring break to accommodate families renting their homes during the week.
“The whole town shut down except for the Masters,” Hayden said.
conclusion
Augusta rules allow you to rent your home for up to 14 days without declaring the income for taxes. Smaller cities that host large events are likely to benefit most from this rule, as they can charge a premium during the rental period. However, this rule applies to anyone in the country and can be a way to increase your income without being affected by taxes.
