This could go either way. But based on the specifics you've provided, I would not treat this as a rental at all. I would look at it as a simple cost-sharing arraignment. Especially since it's your daughter we're talking about here. There are some things that need to be clarified though.
At $500 a month to your daughter, I have do doubt that does not come anywhere close to covering your monthly mortgage payment. But do not have your daughter make payments directly to you. Since this could go either way, let your daughter write the checks for the utilities so that she pays the utilities (up to $500 a month) directly. DO NOT have or let your daughter make any part of the mortgage payment or property taxes. If audited, the IRS *could* see that as reportable income on *your* tax return.
Another way to approach this is as a gift. One taxpayer can give a gift of a maximum of $15K per year to another taxpayer, and neither taxpayer has to report this gift at all. At $500 a month that would be $6K a year which is well under the gift reporting threshold. Just have your daughter make all payments directly to you. Sine there is blood relation here, this would be the method I would suggest you use.
