Wealthy & Wise: Tax Free Money From Your Business!

About the Video: Tax Free Money From Your Business!

IRC 280A refers to a section of the Internal Revenue Code in the United States that addresses the rules regarding the deductibility of expenses related to the use of a taxpayer’s home for business purposes. Under certain conditions, IRC 280A can allow individuals to generate tax-free income. This is primarily achieved through the concept of renting your home to your business for meetings. Restrictions apply.

Prefer to read? A full transcript is provided below.

Cort:

Hello, and welcome to another edition of Wealthy and Wise. I’m your host, Cort Christie. And today we’re going to be talking about how you can turn your home or your vacation property into a tax-free money machine. That’s right. A tax-free money machine. So how do we do this? Well, I brought in an expert today, one of our top advisors at NCH. We’ve got Mr. David Vanlandingham. And David, thanks for being on the program.

David:

Absolutely. Great topic.

Cort:

This is a cool topic and I’m sure everybody’s out there wondering, well, how do we go about this? So, I’m going to turn it over to you.

David:

Yeah, I mean, so we get questions from people all the time that are like, well, you know, I hear you can rent out your house and make money off of it, but for a certain period of time. So, well, we have to first look at is what is a qualifier for that? So, it has to be either your primary residence, as you said, or vacation home. So, the rule is you must live there for at least 14 days out of a year. You can only rent it for a maximum of 14 days a year. And it’s just a little nugget that’s buried in the tax code called the IRC 280A. But it’s there for us.

Cort:

And it’s the same. You must be in that house 14 days, your home, which is obvious for everyone listening.

David:

Right.

Cort:

But for a vacation property that you might have somewhere nice, a cabin and some, on a lake somewhere. You have to be in that 14 days as well during the year.

David:

That’s correct.

Cort:

Okay.

David:

Yeah. Now they’re both qualified because that the 14 days actually qualifies the vacation as a primary for the IRS. That’s where they look at it. So, there’s different little things that you can do. I don’t know about you, but I mean, look we could take, I know one of your condos that you have. So, we could take that condo and we could rent it out for 14 days. And what we have to do first is go and do some market research, find out, and we look at it by the bed and bathroom count. Notice I didn’t say bedroom. I said bed. Because if you see some of these VRBOs and Airbnbs, they may have a bedroom with two or three bunk beds in there, right? Pack them in. So, we will look at the same bed and bathroom count square footage as well. Any amenities that you find attractive, swimming pool, movie theater, you know, things like that and be right in that in that comparison rate. That’s where you want to be. You don’t want to be in the high end. You don’t want to be on the low end, but you definitely want to make sure that you are right there in the middle and that’s how you do it. So, the question becomes, do you want to have people living in your condo?

Cort:

And that’s a question.

David:

Yeah. I mean, I’m already thinking I’m going to lock up my guns and other things in closets because I don’t want people accessing stuff. So, that could be a problem for somebody. But it is a way to make that. I mean, I’ve been to your condo before. I tell you, $1,000, $2,000 a night you could probably get. So, that’s $28,000 on the year right there.

Cort:

And you just mentioned, you know, Formula One, right? Formula One is coming to Las Vegas. What can you get during that period? I mean, in the same space. We’ve got a Super Bowl coming up in February next year.

David:

Correct.

Cort:

Same kind of thing is when these mega events are happening. Imagine what you could charge.

David:

So. Absolutely. So again, but that’s to have somebody else there. Are you okay with that? You know.

Cort:

That’s a great question.

David:

So, if you’re not, there’s other options. So, we want to look at different things that can be available to us. So, maybe not somebody sleeping in your bed, right? So the first thing to do is obviously look at the Airbnb, VRBO and go that route. If that’s not something you want, then the next step would be to potentially rent out the space by the hour. There’s a place called Giggster and this Open Space and Splacer. There’s these websites that you can sign up and put your condo in there and possibly have it used in a movie theater or movie shoot, have a photo shoot, have some special event there, and they’ll rent for $300, $400, $500 an hour. Now, you don’t have people staying overnight. You might have a heck of a mess to clean up the next day, but that’s an option. The third option is what if you don’t want anybody that you really don’t know, stay in there. How about this? Let’s take that place and rent it to our own company. You trust yourself I would assume?

Cort:

Right.

David:

So, we can do that. So, we’re going to do the same thing. We’re going to go and we’re going to find that common comp for that area for that time of year, possibly an event or something. And then what we’re going to do is, we’re going to rent it out based on that. Now, these don’t have to be 14 consecutive days. You can do two or three days a month. You can spread it out however you want to. It’s a total of 14 days. So, you can do company retreats, if you will. You can do some networking and marketing events if you want to. And you know, that’s all hundred percent legitimate. Now, you do want to do certain things to make sure that you’re covering your backside. You want to make sure that you do have a lease agreement, whether you’re leasing it to somebody else or yourself or your own business, you want to make sure you have the proper paperwork in place. You will also cut yourself a 1099 for this as well. And then through the process of the exclusion, the 280A will be excluded from that. So, if you bring in $14,000 or $20,000 in income, the 280A will exclude that from your income.

Cort:

Interesting. So, I can go out to the public and maybe that’s, could be a challenge depending on exactly how many people I want in the House or what kind of personal effects I do have around. You know, I think in the case of my condo in Las Vegas, which is not my primary, but it’s a business location, essentially, I use it and when I come down to Las Vegas, you know, I don’t have anything too special in there, Right? I don’t have all my personal effects just a few things. So, that would be an easy one. I think, when I consider my primary residence and then, of course, getting my wife on board as well.

David:

Right.

Cort:

But there are some massive events in northern Nevada where I have my primary residence and you can’t find rooms when those big events are happening. So, you know, it’d be real easy to say, hey, for this week we’re going to buzz out and get away somewhere, come to Las Vegas and use that location for that time. Interesting. So, the same with then a vacation rental as well, or not a vacation rental, a vacation property you might have. Oh, okay.

David:

Yeah.

Cort:

And so same rules apply, whether it is for you could use it for your business or you could just have somebody stay in it for up to 14 days tax free.

David:

That’s correct. 100%. And now you’re using it for your own business. I’m going to go a little bit deeper. I you know, I think you need to have if it’s an annual meeting, make sure you’re recording your minutes and meetings and everything, but have documentation that this was a company function. It’s 100% legal. And again, I mentioned the Augusta rule. That’s when it first came about. You’ve got a small little area. If you’ve ever been to Augusta, Georgia, there’s not a lot of hotels there. So, where are the people going to stay? So, they started renting out their homes and it worked perfect on the timeline. Daytona 500, same thing. So, any of these special events, Super Bowl as a great one. I can only imagine what your place and I think, looking at the Formula One, the Grand Prix, you might be able to see it from your balcony.

Cort:

Pretty close.

David:

Pretty close.

Cort:

There’s a couple of buildings in the way, but we’re not far away. You could walk there in about 5 minutes.

David:

Yeah, genius.

Cort:

Which is interesting then, you know, so you mentioned the Augusta rule. Everybody is well familiar with the golf tournament that occurs every year. And so, the IRS, it’s interesting that this could come about.. Like if you were literally renting your house for $5,000 a night for a week. So, somebody whose family, extended family could watch their son play in that tournament, that’s hundred percent tax free.

David:

100%.

Cort:

There’s no limit.

David:

No limit, no restrictions.

Cort:

As long as it’s comparable. And at that point, that’s going to be comparable to all the other people renting in that area.

David:

Yeah. You’re definitely going to see a spike in those areas. And I’ve done it myself. I’ve looked to go into different locations for a weekend. We actually just went up to Daytona and spent the weekend up there. The first thing I did was get on the Airbnb and start looking at the prices and everything. And I mean pretty much every place was within like $20, $30 of each other when they’re comparables. So, yeah, those spikes, when you get those anomaly type events coming to town, yeah, you can score a lot of cash, you know, fast. Or how about even a, you know, a movie shoot, you know, a location that if you’re going to use your condo for three or four days shooting, what are you going to get for that five, $10,000 a day? Probably.

Cort:

What a great thing, especially if you have the right kind of property in the right location, just to put it out there.

David:

Absolutely.

Cort:

What’s the name of that website that you can put it on?

David:

Giggster, is probably the biggest. This Open Space is another one. But Giggster is probably the big one. Pure Space is another one. There’s a whole bunch of them out there for a reason because people are doing it. But back to the business side of it, you know, let’s look at the tax break for the business because they get to write that check to lease the space. So, now they’re not paying tax on that money. Plus, it’s a write off as well.

Cort:

Right, right. So, it lowers the business tax. You take that income in the year pocket.

David:

Nontaxable.

Cort:

Zero tax.

David:

Yup.

Cort:

There will be some reporting they need to send you a 1099 at the end of the year. Yeah, but you simply want to deliver it then to your tax professional, letting them know that this is under the Augusta Rule and is nontaxable.

David:

That is correct. So that goes on your tax return as a 1099 miscellaneous income and then the 280A excludes it.

Cort:

Hmm. Wow. Now, I think that’s something that everybody listening should take advantage of depending on the area that you live in. But you might be surprised you know, every city has an event. You know, maybe like you said, if there’s Hollywood coming to your neighborhood, they might want to take advantage of, a photographer that’s just looking for the right kind of environment to shoot in. There’s a lot of different options.

David:

Yeah, it’s you know, the tax code is out there. You know, everybody says, well, it’s not fair that the rich keep getting richer based on the tax code. Well, they have the right people looking at the tax code and breaking it down and saying, here’s where you can make some money. So.

Cort:

And so many of our listeners have their own businesses and you can use that for meetings that you might want to have. A retreat for you and your employees or some employees to take advantage of. Maybe it’s also, you know, the annual meeting that we always talk about with our clients. As a business owner and you have an LLC or a corporation, you can have an annual meeting of your members of your ownership structure, and you sit down and you discuss, you know, the successes of the past or the challenges of the past. And you look forward and do some planning for where you’re heading in your organization. Again, your business can write you a check for that. It’s deductible to the business and tax free to you. So, we’re all trying to figure out how do we reduce our taxes. You got a great example right here from David Vanlandingham. Thank you, David.

David:

Absolutely.

Cort:

Great program today. I hope you all are taking notes. And if you don’t trust us, call your tax professional. Verify the Augusta Rule. Find out all about it. It’s a great little strategy for individuals to earn income, tax free, and there aren’t a lot of ways to doing that anymore. So, thanks for tuning in again to another one of our programs here, Wealthy and Wise. I’m your host, Cort Christie, and NCH is our sponsor here, and that is the company where we make things happen. Ideas like this are exactly what we’re doing for our clients day in and day out. We’re setting up their business structure. We’re helping them minimize their taxes, and we’re also helping them work on their estate and planning for the next generation as well. And we’ve got amazing experts like David Vanlandingham here that are advising our clients day in and day out. We have a complimentary service for anyone that’s listening. Simply call us. We’ll get you on the calendar of one of our amazing professionals. We do not charge anything for the consultation. They’ll talk to you about what your options are and exactly what we feel like you should do to get ahead and take advantage of some of these services that we have for you. So again, take advantage of this free offer for anyone listening. Get on the calendar of one of our amazing advisors here at NCH. Also, for those of you listening, please like and subscribe. It helps us spread the word to the world. So, thank you again for tuning in!

DISCLAIMER: The above material has been prepared for informational purposes only, containing opinions of the provider, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.