If this income is reported as fair rental price, you would create a residential rental activity and report the income under that activity.
If the portion of the house identified as rental property was 25% of the square footage of the house, then the residential rental activity would report 25% of the house-related expenses. This could include mortgage interest, real estate taxes, utilities. Improvements may be expensed or may be capitalized and depreciated.
In TurboTax Online, the residential rental activity may be established by following these steps:
- Down the left side of the screen, click on Federal.
- Down the left side of the screen, click on Wages & income.
- Scroll down to Rentals, Royalties, and Farm. Select Show more.
- Select Start to the right of Rental Properties and Royalties
The remaining 75% may be deductible as an Itemized Deduction on Schedule A. This would include mortgage interest and real estate taxes.
See also this TurboTax Help.
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