07. Step-by-Step Implementation

Step-by-Step Implementation

This is your practical how-to guide for applying the Augusta Rule the right way — with airtight documentation to survive IRS scrutiny.

1. Verify Eligibility

1.1 Is Your Property a Personal Residence?

✅ Must be used as a home by you — not purely a business or rental investment ✅ Can be your:

  • Primary residence

  • Vacation home

  • Second home

  • Boat/RV (if used as housing with sleeping, kitchen, toilet)

1.2 Are You Renting to a Separate Entity?

✅ The business must be a separate legal entity (e.g., S-Corp, C-Corp, or LLC) 🚫 Sole proprietorships are not allowed — you are the same entity as your business

2. Determine Fair Market Rental Value (FMRV)

You must charge a reasonable rate that you can justify.

2.1 Do This:

  • Get quotes from 3+ venues: Airbnb, hotels, coworking spaces

  • Save screenshots and addresses

  • Create a comparison table

📎 Coming soon: Downloadable FMV research worksheet

3. Define Business Purpose

Rent must be for ordinary & necessary business use under IRC §162.

✅ Acceptable uses:

  • Quarterly board meetings

  • Strategic planning sessions

  • Staff or advisor training

🚫 Not acceptable:

  • Birthday parties

  • Celebrations

  • Client entertainment

📝 Pro tip: Create a printed agenda for every event.

4. Draft a Formal Rental Agreement

The agreement should include:

  • Name & address of both parties

  • Description of space rented

  • Daily rental rate and total

  • Dates rented

  • Business purpose

  • Payment terms

  • Signatures

📎 Coming soon: Downloadable Rental Agreement Template

5. Process Payment Correctly

✅ The business must issue payment:

  • From its business account

  • Via traceable method (check, ACH, bank transfer)

📄 Coming soon: Downloadable Invoice Template

6. Maintain Proper Documentation

6.1 Keep These On File:

  • 🗂️ Meeting agenda

  • 📋 Attendee list

  • 📸 Optional: photos of setup

  • 💳 Proof of payment (bank receipt or check image)

  • 🧾 Invoice copy

  • 📝 Signed agreement

✅ These are your audit defense documents.

7. File Taxes Accurately

If:

  • You stayed under 14 rental days

  • You received no 1099-MISC...

Then:

  • 🚫 Do not report the income

  • ✅ Continue deducting your mortgage and property taxes on Schedule A

If a 1099-MISC was issued:

  • ✅ Report it on Schedule E

  • ⚖️ Add offset expense labeled:

    “Offset – Non-taxable under IRC §280A(g)”

✅ Final Compliance Checklist

Use this at the end of every Augusta Rule rental:

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