Somewhere in Augusta, Georgia, a homeowner passes a set of keys in early April, travels to a relative\u2019s home for the week, and returns to find a five-figure check that won’t show up on a tax return.<\/p>\n
None of this is evasion. It is outlined in Section 280A of the Internal Revenue Code, which dictates when a home that serves as a residence is treated as rental property and when it is not. Subsection (g) is what homeowners find important: rent the property for fewer than 15 days within a year and the income is excluded from gross income. The IRS states the same in Topic 415, its straightforward guidance on residential and vacation property, instructing owners not to report that income and not to deduct rental expenses against it either.<\/p>\n
No forms, no schedules, no lines on the return.<\/p>\n
How the day count operates<\/p>\n
Fifteen is the tipping point.<\/p>\n
Rent for 14 days and the exclusion remains intact. Exceed 15 and it completely vanishes: the year\u2019s rental income must be reported, expenses need to be divided between personal and rental usage, and Schedule E comes into play for the first time.<\/p>\n
No partial exclusion exists for the initial two weeks.<\/p>\n
Counting those days is more stringent than many realize. The University of Illinois Tax School indicates that any day the property is rented below fair market value counts as personal use rather than rental use, which subtly traps owners offering discounted rates to friends.<\/p>\n
Why a golf tournament is hidden in federal tax regulations<\/p>\n
So why does a segment of the Internal Revenue Code refer to a mid-sized Georgia city? Just one week in April, essentially. Accounting firm Weaver attributes the nickname to Augusta homeowners renting out their houses during the Masters, when the town’s hotel capacity is completely consumed and visitors begin knocking on doors in suburban areas.<\/p>\n
The amounts involved are significant. Local agency Sherman and Hemstreet estimates the average short-term rate surge in Augusta at 178 percent during peak season, which it deems the steepest seasonal increase in the nation. Property company Propcash suggests tournament-week earnings at approximately $5,000 for a modest ranch house and over $25,000 for something larger and nearer to the entrances.<\/p>\n
A week away from home, one or several mortgage payments, and a tax return that remains unmentioned.<\/p>\n
The maneuver that triggers audits for business owners<\/p>\n
Three gym owners discovered a loophole.<\/p>\n
If the code exempts the homeowner receiving the rent, and ordinary business expenses are deductible for the entity paying it, then a company renting its own shareholder\u2019s living room creates a deduction on one return and untaxed income on the other. The same dollar, accounted for twice in favor of the taxpayer.<\/p>\n
The arrangement itself is allowed.<\/p>\n
Bloomberg Tax summarized the strategy as claiming a corporate deduction for the payment while excluding the equivalent amount from personal income under 280A(g). Issues arise with the pricing and the supporting documentation.<\/p>\n
What the judge actually cut<\/p>\n
$290,900 came in. $16,500 went out.<\/p>\n
The three shareholders operated a Planet Fitness S corporation and compensated themselves rent for monthly board meetings held at their residences, ultimately agreeing on $3,000 a month for each. Writing in Forbes, Kelly Phillips Erb explained how the Tax Court recalibrated the figures in Sinopoli v. Commissioner: 12 meetings at $500 for 2015, 12 more for 2016, and nine for 2017. An IRS revenue agent determined the $500 figure, and as Ed Zollars noted in his analysis of the ruling, the court accepted that valuation as reasonable.<\/p>\n
Two issues caused their downfall. The rate was derived from commercial meeting-space benchmarks applied to shared areas of standard suburban homes, and the meetings lacked agendas, minutes, and attendee lists. A few individuals gathered around a kitchen table for an hour does not justify a $3,000 venue rental, and without contemporaneous documentation, there was no evidence that most of the meetings occurred at all.<\/p>\n
This leaves the rule performing a somewhat unusual function. It favors those who undertake the straightforward, mundane task of packing a bag and vacating for a week, while the version that draws attention online, which is promoted as a trick for business owners, provides the IRS with a thread to unravel. A homeowner who simply allows the house to remain empty during Masters week has no valuation to support and no meeting records to present. There was never anything to defend.<\/p>\n","protected":false},"excerpt":{"rendered":"
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