Earn tax-free income renting out your home

[Julio Gonzalez]

Did you know that you can rent out your home for up to 14 days per year without having to report the rental income on your tax return? Section 280A(g) of the Internal Revenue Code is also known as the Augusta Rule. It applies to all taxpayers as long as their home is not also the primary location for their business.

Here are some key points worth noting:

• This exemption applies to primary homes, vacation homes and secondary homes.
• The rate of the rental must be considered reasonable for its location on that specific date. For example, on an average day your property’s rate will be lower than on the day of an event in which it's located nearby.
• The expenses related to this property are non deductible.
• The property that the taxpayer is renting out must be a personal residence such as a house, mobile home, boat, condo or similar property.
• The 14 day limit does not need to be consecutive. You could rent your property out for weekends with high demand to take advantage of higher income.

One big perk of this rule is that small business owners can actually “double dip”. For example, if you own a vacation home, you could have your business rent out the property for a work retreat. This would allow the individual taxpayer to earn income and the business would have a legitimate business expense. Just ensure you have proper documentation in the event of an IRS audit such as comparable market rates to prove reasonableness of the rate charged as well as evidence of the work retreat such as minutes or an agenda. Pretty great rule, right?!

Have you taken advantage of this tax savings tool?