1. It's rental income and you need to report it as such on SCH E as a part of your own tax return. Since you will be renting to family, if what you're being paid is less than FMRV then you will not be allowed to carry over losses. You just lose them forever.
3. You'll claim everything related to the rental on your taxes. Income, expenses, mortgage interest, insurance, depreciation, etc. etc. etc.
