It involves renting your personal residence or vacation home for up to 14 days each year. If not otherwise used, rent your personal residence or vacation home to your small business for the board of director, shareholder, staff meetings or other business meetings. The rental paid by the business will be tax deductible, while up to 14 days of rental income can be received tax-free pursuant to Section 280A(g).
To give you an example, one of our clients, a small business owner rented his vacation home to his business to conduct various meetings throughout the year. At the fair rental price of $500 per day, that amounts to an annual rental expense deduction on his business tax return for $7,000.
At his tax bracket, it was a tax saving of approximately $2,310 on federal tax alone per year. So he was able to rent out his vacation home for $7,000. The rental income was not treated as income on his personal tax return while it was treated as a legitimate business deduction on his business tax return.