Augusta Rule: Gimmick or Gold Mine?

You’ve probably had clients come to you with “tax advice” they got from YouTube, a friend at a seminar, or a self-proclaimed expert at their networking group. Sometimes it’s harmless. Other times… it gets messy.

This week, we reviewed a case where a client and their CPA weren’t exactly seeing eye-to-eye, specifically around the Augusta Rule. Here’s what happened:

The client runs a few businesses and has some real estate that all their kids have an interest in. So they brought the family together for a week and spent a day providing updates on the business and discussing expectations for the future. The meetings all took place at the taxpayer’s home.

So far, so good.

They compared local Airbnb prices and came up with a rental value, then tried to apply the Augusta Rule to deduct that amount tax-free through their LLC. But when their CPA reviewed the return, he shut it down. Not because the meeting wasn’t valid. Not even because he didn’t understand the rule. He simply said the deduction didn’t feel right, especially since the LLC was already showing a loss.

The client was frustrated. “Why are people out there teaching this strategy if my own CPA won’t even consider it?” That’s when the advisor reached out to us.

Here’s the reality:
The Augusta Rule can be a powerful tool, but only if it’s used correctly. And while I’ve seen CPAs be overly cautious about this rule, in this case, the hesitation seemed to be about the amount, not the strategy.

My take?
If you’re going to help clients use this rule, they need to:
– Have a legitimate business reason for the meeting
– Document the purpose, attendees, and agenda
– Use reasonable, well-supported comparables to justify the amount
– Treat it like any other business expense and make sure the money is actually paid from the business to their personal account.

Most CPAs I know are going to be at least a little cautious when it comes to more unique strategies, like the Augusta rule. I might actually be concerned if there were no questions when a strategy like this got brought up. But that doesn’t mean the strategy is a gimmick. It’s been audited by the IRS, and there is precedent for it being allowed when it is done correctly. If your clients are hearing about the Augusta Rule, make sure you’re ready to guide them through it with clarity, not confusion.

What this case really highlights is the gap that often exists between tax planning theory and real-world application. Clients are hearing about strategies like the Augusta Rule all the time, but without an advisor who understands both the rule and how to support it, and a CPA who’s open to thoughtful collaboration, they’re left frustrated or worse, at risk.

It’s not just about knowing a rule exists. It’s about knowing when it’s applicable, how to document it, and how to communicate it clearly, with clients and their CPAs. That’s where great advisors set themselves apart.

Happy Tax Planning,

Steven Jarvis, CPA