Tax hacks: how to rent your apartment tax-free?

Feb 20, 2018

Renting your house or apartment is an excellent way to make some extra money! And now the online platforms make it even easier to achieve than ever. AirBnB is a fantastic alternative to pricey hotels and the IRS has a little weird exemption in the tax law for AirBnB hosts that you should know about. If you rent a room or your whole apartment just for a few days a month, the government allows you to collect all that income tax-free.

You’re probably wondering how is that possible Uncle Sam gives you an exemption on your rental income?! As a general rule, any income you earn according to the tax code is taxable. Therefore, in most cases, it will be subject to tax. However, there’s a unique provision that allows you to exclude your rental income from reporting it on your 1040. Really hard to imagine, but it is true!

What is “Augusta Rule”?

The “master rule” exemption or sometimes called “Augusta Rule” in honor of the residents of Augusta, Georgia. They rent their homes to spectators of the annual Masters Golf tournament allows you to exclude your rental income if you rent out your home for less than 15 days. It can benefit anyone, not particularly living next to a major event. The exemptions can be used by all taxpayers renting their houses for 14 days.

The 14 days do not have to be consecutive and the income is tax-free regardless whether you make $200 or $20,000 during this time. Note, that the rental expenses from such an activity are not deductible. If you usually deduct your property taxes and/or mortgage interest, you can continue to do so without any changes.

However, if you rent your home for 15 days or more, you will have to report this income as your rental income on Schedule E and all of it is taxable. There are no 14 days rental deduction.

The Section 280A(g) of the Internal Revenue Code allows some to earn even $20,000 tax-free income during major events. Mark that one for to put some tax-free passive income in your pocket.

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