You are required to report the income.
Many rental real estate tax returns claim a loss and the $25,000 exception for rental real estate with active participation allows many taxpayers to claim the real estate loss against ordinary income. See IRS publication 527, page 13.
Exception for Rental Real Estate With Active Participation
If you or your spouse actively participated in a passive rental real estate activity, you may be able to deduct up to $25,000 of loss from the activity from your nonpassive income.
This feature may not currently be available to you depending upon your modified adjusted gross income (see page 14).
Generally, if your MAGI is $150,000 or more ($75,000 or more if you are married filing separately), there is no special allowance.
Are you reporting depreciation? I do not see it listed.
If you rent your property below fair market value, the IRS may consider that you do not rent your property to make a profit. In this case, you can deduct your rental expenses only up to the amount of your rental income. See here.
@Steve Lea
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