To find new ways to save money on taxes, business owners are always looking for methods that are legal and make sense. One approach that might not be well known but can help you save a lot of money on taxes is the “Masters Rule.”
According to the Masters Rule, business owners can rent out their main home or a vacation home to their company for up to 14 days a year and not have to pay taxes on the renting income.
In this piece, we’ll go over the specifics of this tax-saving method, including where it came from and what you should remember if you choose to use it.
How the Masters Rule Began
The Masters Rule gets its name from Augusta, Georgia, and the Masters Golf Tournament, which is held every year and is one of the most important events in golf.
People in Augusta saw a chance to make money off of all the tourists who came to watch the game, and that’s how the idea of renting out their homes during this time came about.
The great thing about this plan was that Augusta homeowners could rent out their homes to tournament goers without having to report their rental income on their taxes. This was possible because of a unique IRS rule.
What You Need to Know About the Masters Rule
Not a Full-Time Rental Property:
That’s right, the place you’re renting out shouldn’t be thought of as a full-time rental property if you want to use the Masters Rule.
This means it should be either your main home or a getaway home that you sometimes use for personal reasons. This rule was made by the IRS to help people who rarely rent out their homes, not professional landlords.
The most important part of the Masters Rule is that you can only rent for 14 days at a time. You don’t have to report rental income from your home to the IRS for up to 14 days a year if you let your business use it.
If you make more than this amount, though, you’ll have to report the extra money, and the tax breaks will no longer apply.
Establishing a Lease Agreement:
To make sure you’re following the tax rules, you need to set up an official lease agreement between your business and yourself as the home owner.
The price of the rent should be written in this lease deal, along with the other terms and conditions of the rental. To figure out a good rental price, you should look into and write down the rental prices for similar events or times in your area.
Benefits of the Masters Rule
The Masters Rule is a good way for business owners to save money on taxes. Most importantly, these are the benefits:
The rent money you get from renting out your home is not taxed, which can save you a lot of money on your taxes.
You can pick any property in the United States to rent, whether it’s your main home or a vacation home.
Letting your home to a business can give you extra money, so it’s a win-win situation.
The Masters Rule, which is also called the “14-day rental rule,” lets business owners rent out their main home or a vacation home to their company for up to 14 days a year without having to report the income on their taxes.
This approach was first made to help homeowners in Augusta, Georgia. Since then, it has grown into a useful way for business owners all over the United States to save money on taxes.
But it’s very important to strictly follow the rules and make sure that your home isn’t rented out full-time and that you don’t go over the 14-day limit.
If you implement this strategy, you can enjoy the tax benefits and potentially boost your income while providing your business with a suitable place for its activities.
Make sure you talk to a tax expert to make sure that this strategy fits with your goals and current financial situation.