05. Interaction Between Personal & Business Use
Interaction Between Personal & Business Use
The real power of the Augusta Rule lies in how it benefits both sides of a business relationship:
🏡 Personal side: The homeowner receives tax-free income
🧾 Business side: The company deducts the payment as a business expense
This creates a “double benefit” — but also triggers closer IRS scrutiny.
⚖️ The IRS Sees This as a Related-Party Transaction
Because you are both the owner of the business and the homeowner receiving payment, the IRS watches closely.
To stay compliant, you must prove:
✅ The business had a legitimate reason to rent the space
✅ The rent was fair market value
✅ It was used for a qualified business event (not personal)
✅ You followed arm’s-length documentation steps
💼 Deductible for the Business
The business can deduct the rent under IRC §162 if:
The rental is ordinary and necessary
The price is reasonable and supported
The use of the space was for valid business purposes
✅ Common eligible uses:
Board meetings
Strategic planning
Training or retreats
Advisory presentations
📄 You’ll create meeting agendas and invoices in later steps.
🧾 Not Taxable to the Homeowner (If ≤ 14 Days)
On the personal side:
You do not report the rental income
You do not take rental deductions for those days
You still get to deduct your mortgage and taxes under Schedule A (if itemizing)
🚫 But if you exceed 14 rental days? All rental income is taxable, and the Augusta Rule doesn’t apply.
🔍 Why Documentation Matters
The IRS often challenges Augusta Rule arrangements if:
No formal agreement was signed
The meeting purpose wasn’t clearly business-related
The rate wasn’t documented or justified
The event looked like a disguised dividend or personal benefit
📌 “Substance over form” will rule:
The IRS doesn’t just look at paperwork. They look at the real intent and execution behind it.
✅ Summary
✅ You can create a double tax benefit
✅ The business gets a deduction
✅ You receive the payment tax-free
⚠️ But you must document everything like a real business deal
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