This file explains the IRS “14-day rule,” often called the Augusta Rule, which allows homeowners to rent out a personal residence for 14 days or fewer per year without having to report that rental income on their federal tax return. In simple terms, it highlights a legal tax strategy where short-term rental income becomes completely tax-free as long as the rental period stays within the 14-day limit. The document clarifies that when this rule applies, the homeowner keeps all rental income without federal taxation and does not need to disclose it to the IRS.

The file outlines the key benefits and limitations of the rule. The major advantage is straightforward: income earned from renting a personal home for up to 14 days is excluded from federal reporting. However, it emphasizes an important tradeoff: because the income is not reported, the homeowner cannot deduct rental-related expenses such as utilities, insurance, maintenance, or repairs against that rental income. Instead, the homeowner may still deduct standard personal homeownership expenses like mortgage interest and property taxes, typically through Schedule A if itemizing deductions.

Another key section explains the personal use requirement. To qualify for the rule, the homeowner must use the property personally for more than 14 days during the year, or more than 10% of the total days the home is rented, whichever is greater. This prevents taxpayers from claiming tax-free rental income on a property that is primarily used as a rental.

The file also discusses a common business-related strategy: business owners can rent their personal home to their own corporation for meetings or events. In this case, the business may deduct the rental expense, while the homeowner receives the income tax-free—making it a potentially powerful planning tool when used correctly.

Finally, the document explains that if the home is rented for 15 days or more, all rental income must be reported and the owner may deduct prorated rental expenses. It also notes that state or local short-term rental taxes may still apply and recommends consulting a tax professional.