This week, the world’s best golfers are descending on Augusta, Georgia for the 83rd edition of the Masters golf tournament. Augusta National Golf Club is famous for more than green jackets and pimento cheese sandwiches—legend has it that it’s the impetus for one of the taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. code’s many exemptions.
Section 280(A) of the Internal Revenue Code outlines the tax treatment of residential property. In general, the imputed rent from owning a primary residence is not taxable and home-ownership expenses are not deductible, except for mortgage interest and real estate taxAn estate tax is imposed on the net value of an individual’s taxable estate, after any exclusions or credits, at the time of death. The tax is paid by the estate itself before assets are distributed to heirs. es, with limitations. Conversely, owners of rental real estate must include rental income in their income calculations, but they can deduct ownership expenses to reduce their taxable incomeTaxable income is the amount of income subject to tax, after deductions and exemptions. For both individuals and corporations, taxable income differs from—and is less than—gross income. .
Section 280(A)(g) provides an exemption, however. The provision states that “if a dwelling unit is used during the taxable year by the taxpayer as a residence and such dwelling unit is actually rented for less than 15 days during the taxable year, then…the income derived from such use for the taxable year shall not be included in the gross income.” In other words, if a property is rented out for 14 days or less in a year, the income is not taxable, a large caveat.
But what does that have to do with the Masters tournament?
The story goes that when Congress debated the taxation of rental income in the 1970s and which deductions should be allowed, the well-to-do residents of Augusta, Georgia lobbied to have this exemption added. They previously had been allowed to collect the rent tax-free, and they wanted that treatment to continue. As the story goes, they succeeded, keeping their tax break.
Residents of Augusta are famous for renting out their properties for the tournament and leaving town for a spring vacation. The price of rentals in Augusta for the Masters makes this a profitable enterprise for owners of real estate close to one of the world’s most famous golf courses. According to the Masters Housing Bureau, a suggested rental price for a five-bedroom house close to the golf course is $9,000-$11,000 for the week. Eight- to 10-bedroom houses can go for as much as $25,000 for the week.
These prices make Section 280(A)(g) a generous tax savings. At a 37 percent top marginal tax rateThe marginal tax rate is the amount of additional tax paid for every additional dollar earned as income. The average tax rate is the total tax paid divided by total income earned. A 10 percent marginal tax rate means that 10 cents of every next dollar earned would be taken as tax. for the federal government, an individual with $25,000 in rental income avoids a more than $9,000 tax bill.
This week when you watch Rory McIlory, Phil Mickelson, Bubba Watson, and others battle it out in Amen Corner, remember that Bobby Jones’s course is home to more than just blooming azaleas: it’s home to one of the tax code’s many tax breaks.Share