monkeybusinessimages / iStock.comPassive income — money not derived from active involvement such as a salary — can come in a variety of flavors. And if you’re a homeowner, there’s a tax- free way that could help you maximize profit each year.Here Are: 10 Top Ways To Become Rich by Only Working on WeekendsSee: How To Generate Passive Income With Just $500As The Wall Street Journal reported, one of the best freebies in the tax code has gotten better — for people who don’t abuse it.Sponsored: Open a new checking account and earn early paycheck access; up to 2 days early with Discover® Cashback Debit with Early PayWhat Is Tax Code Section 280A(g)?This tax code section 280A(g) — also known as the Masters’ exemption, or the Augusta tax loophole — is a provision enabling homeowners to rent out their homes for two weeks or less and get the rental income free of federal taxes.The provision’s nicknames stem from the Masters Tournament held each year at the Augusta National Golf Club.As Whittaker CPAs explained in an article, in the 1970s, Augusta residents lobbied for a tax provision that would allow them to rent out their homes to tournament attendees without facing complex tax obligations. “Their efforts were successful, and Section 280A(g) was added to the tax code,” the Whittaker CPAs article stated. “Importantly, the IRS Augusta Rule now extends to homeowners across the United States, not just those in Augusta, Georgia.How Can You Maximize Your Rental Profits Using This Strategy?Tyler Davis, CPA and owner at Davis Accounting & Tax, said that a homeowner can best maximize profits by utilizing section 280A(g) in an area that demands the highest short term rental rates. “This can be accomplished if you live in a desirable location and/or you rent the property during a high demand time,” he said.According to Davis, for instance, if you are in the direct line of the 2024 Solar Eclipse, you may fetch a great rental fee in an area that usually may not generate much for a rental fee. The amount for the exclusion from income for 280A(g) may qualify as long as you secure a formal rental agreement with the tenant, it is less than 15 days and the rate is market rate, he explained.Story continues“The provision allows for a taxpayer to rent their home for less than 15 days and the revenue generated from such is excluded from gross income,” he added, noting that this could be very sizable amounts of money in popular destinations.Another great feature of 280A(g), he said, is if you are a business owner, you may be eligible to rent your residence to your business for meeting purposes. “This could generate tax-free income and a business deduction,” he said. Yet, he also added that it is best to discuss this with a tax professional to ensure you qualify before proceeding.In terms of downsides, this entails additional record keeping requirements for at least three years after your tax return is filed.“Important documents would include the rental agreement, terms, evidence of the revenue and another important piece of evidence would be supporting documents that show the price was comparable to market rates,” he said, adding that these could be found via VRBO or Airbnb.More From GOBankingRatesThis article originally appeared on GOBankingRates.com: Want 2 Weeks of Tax-Free Passive Income Every Year? Try This Strategy
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