Your mother reports the rental income/expenses on SCH E of her own tax return. More than likely, this will not generate any taxable income for her anyway. Generally (usually) when you add up the allowed and deductible rental expenses of mortgage interest, property taxes, and property insurance along with the depreciation, those four expenses alone usually exceed the total rental income received for the year, resulting in a loss "ON PAPER" at tax filing time.Add to that the additional allowed rental expenses of utilities, repair, maintenance, etc. and you're almost assured that you will show a loss each and every year the property/room/space is rented.
Typically, all depreciation taken is recaptured and taxed in the tax year you sell the property. But if she doesn't sell the property *and* you inherit the property upon her passing, two things happen.
1. the recipient of the inheritance gets a step-up in cost basis equal to the FMV of the property on the date of the owner's passing.
2. All prior depreciation already taken basically evaporates and "goes away" and nobody has to recapture and pay tax on that depreciation.
So there's no need for you to try to "get around" anything tax-wise, because there's really nothing to "get around" anyway.That is, assuming the house will never be sold or otherwise have any type of ownership change until after your mother passes.
