When a home is rented at less than the fair rental value to a family member, it is treated as being used personally (Reg Sec 1.280A-1(e)(2)). Since it is rental property which the taxpayer is treated as using personally, the taxpayer would have to allocate the expenses between the personal and rental portions of the year.
https://www.law.cornell.edu/uscode/text/26/280A
However, since all of the rental days (at a bargain rate to a relative) are treated as personal days, the rental portion is zero. So none of the expenses are deductible, other than property taxes and mortgage interest, assuming the interest would otherwise qualify as second home mortgage interest.
Since it is not a rental, the income would be reported as “other income” (line 21 of the 1040) and the mortgage interest and taxes deducted on Schedule A, assuming the landlord is itemizing deductions. Schedule E would not be used.
**Answers are correct to the best of my ability but do not constitute tax or legal advice.
