Is this merely a cost sharing arrangement? Or do you have a rental contract with the tenant(s)?
If the latter, then it sounds to be like you rent out a part of your primary residence. You would be required to report all rental income/expenses on SCH E as a part of your personal 1040 tax return.
When renting out a part of your residence, the fact the rent is lower than the mortgage payment is irrelevant. What is relevant is:
- Are you renting to a family member?
- Are you renting at the fair market rental value for the space being rented, when compared to other similar rentals in your locale?
When renting to family at below FMV, your deductible expenses are limited to the amount of rental income received, and carry overs are not allowed. You just lose those carry overs forever. So in the end, it's all a wash. That's why I ask if this is just merely a cost sharing arrangement with no formal rental contract.
