Weather you pay off the mortgage or not is irrelevant. What you charge for rent is irrelevant. Who you rent to (family member, friend, other) is irrelevant. Rental income still has to be reported as such on SCH E as a part of your personal 1040 tax return. Do note that if you rent to a family member at less than the fair market rental value of the property, then you are not allowed to carry forward any losses on the rental business. Once your rental expenses get your taxable rental income to zero (..and they will) that's it. You're done. Any additional losses can not be carried forward. You just lose them permanently and forever. But the fact that your rental expenses will get your taxable rental income to zero doesn't matter. You are still required by federal law to report it. Don't forget that you are also required by law to depreciate the property. (The program will handle this for you automatically in the Assets/Depreciation section.)
