Without a doubt, an overlooked tax strategy that many California dental practice owners can still use to reduce taxable income while supporting their teams. According to a professional tax resource, the QBI deduction under Section 199A can phase out for service businesses like dental practices, making other deductions and strategies even more critical for lowering tax burden.

Dentists often earn high income but miss legal deductions that could lower their 2026 tax bill. One of those deductions is tied to the Augusta rule, a part of the tax laws that allows homeowners to rent their home to a business for up to 14 days each year without reporting that rental income.

When used the right way, this rule lets a dental practice deduct rent while the dentist receives tax-free income. This guide explains how the Augusta rule works, how dentists can use it for team events, and how it fits into a smart 2026 tax strategy.

What Is the Augusta Rule and Why Dentists Should Care in 2026

The Augusta rule comes from an IRC section of the tax code. It allows homeowners to rent their home for up to 14 days each year without reporting rental income on their tax return. As long as the home is rented for 14 days or less, the income is excluded from taxable income.

For dentists operating a dental practice, this rule can be used when the business rents the dentist’s home for valid business reasons. These can include:

  • Team events
  • Staff training days
  • Planning meetings
  • Year-end reviews

The dental practice deducts the rent as a business expense. The dentist does not report the rental income. This lowers taxable income at the business level and creates tax-free rental income for the homeowner.

In 2026 tax planning, this matters more as many dental practice owners face a higher tax burden from rising profits.

How the Augusta Rule Works for Dental Practice Owners

To qualify under the Augusta rule, the setup must be real, reasonable, and documented. The IRS allows this deduction, but only when it is done correctly.

Key requirements include:

  • You own the home as a homeowner
  • Your dental practice rents your home
  • The rental is no more than 14 days each year
  • The rent matches fair market rent
  • The event has a clear business purpose

Your dental practice pays rent to you personally. That rent becomes a deduction and lowers business income. You do not report the rental income on your tax return.

For tax purposes, this shifts income from taxable income to tax-free income without changing cash flow.

Using the Augusta Rule for Team Events and Meetings

Team events are one of the safest ways for dentists to use the Augusta rule. Dental practice owners often need space for meetings that cannot happen in the office.

Common team events include:

  • Annual planning meetings
  • Staff training sessions
  • Leadership meetings
  • Team appreciation events with a work agenda

These events must be business for meetings, not social gatherings. The IRS expects proof that work took place.

You should keep detailed records such as:

  • A written agenda
  • A list of attendees
  • Notes from the meeting
  • Proof of payment
  • Photos showing meeting setup

When done right, team events create value for staff and support a valid deduction.

Setting the Right Rent and Staying Compliant

Rent is one of the most important parts of this strategy. Rent must match what someone would pay to rent a similar home for a similar event.

To stay compliant:

  • Look at short-term rental listings in your area
  • Adjust for size, location, and features
  • Write down how you set the rent
  • Pay rent through normal business accounts

Charging too much rent can cause problems. Charging too little reduces tax benefits. Your CPA should review the rent to confirm it is reasonable.

The goal is to deduct what is fair, not to push limits.

How the Augusta Rule Fits Into a Broader 2026 Tax Strategy

The Augusta rule works best when combined with other tax deductions. It should not stand alone.

Many dentists also use:

  • Depreciation on equipment
  • Bonus depreciation is back in a limited form
  • Section 179 expensing
  • Retirement plan contributions
  • Pass-through entity tax or PTET
  • Section 199A planning

Each tool lowers taxable income differently. The Augusta rule is unique because it creates tax-free rental income while still allowing the dental practice to deduct the cost.

This can help reduce taxable income while building long-term wealth.

Special Considerations for California Dentists

California dentists must think about both federal tax and state and local tax rules. The Augusta rule applies at the federal level, but state treatment should be reviewed.

Key points to review include:

  • Entity type, such as LLC or partnership
  • How PTET elections apply
  • How rent payments are recorded
  • How income flows through pass-through entities

Dentists filing as single filers or married filing jointly should also confirm who owns the home and how rent is paid.

A CPA who works with dental practice owners in California should review the setup before using it.

Common Mistakes Dentists Make With the Augusta Rule

Many business owners skip this deduction because they think it is risky. Others use it incorrectly.

Common mistakes include:

  • Renting the home for more than 14 days
  • Missing proof of business purpose
  • Charging rent that is not realistic
  • Treating events as social only
  • Failing to keep records

The IRS allows this rule. Dentists just need to follow it as written and substantiate the deduction.

How the Augusta Rule Supports Long-Term Exit Planning

Dentists planning a future transaction or sale often focus on the final number. What happens before that matters just as much.

Lowering taxable income over time can:

  • Improve cash flow
  • Increase retirement contributions
  • Reduce the tax burden year after year
  • Support long-term financial goals

The Augusta rule helps dentists save on taxes while keeping income in the family. Over several years, this can add up and support income while building long-term wealth.

Common Questions Dentists Ask About the Augusta Rule in 2026

A homeowner can rent their home for up to 14 days each year without reporting the rental income.

Yes. When done correctly, the rental income is tax-free for the homeowner and a deduction for the dental practice.

Yes. Team events qualify when they have a real business purpose and proper records.

The rule applies at the federal tax level. California dentists should confirm state treatment with a CPA.

Yes. Married filing jointly does not prevent the use of the rule, but ownership and payments should be reviewed.

It is allowed under tax laws. Risk comes from poor records or improper use.

Are You Leaving Tax Savings on the Table in 2026?

The Augusta Rule for Dentists is a simple but powerful way for California dental practice owners to reduce taxable income and keep more of what they earn. It rewards planning, clear records, and proper advice.

If you own a dental practice and want to reduce your 2026 tax burden while supporting your team, talk with your CPA or advisor now. A short review could uncover tax benefits you are leaving on the table.