Do I pay income taxes for renting a home at less than fair market value?

[Jjone]

I am moving to another state for 2 years for a job with the intent of moving back into my house after that time. We currently pay a mortgage on the house. We are planning on having a friend move in and will be charging significantly less than similar housing in our area and in fact it does not even cover our full monthly mortgage payment. 

I just want to make sure that this is not actually going to cost us more money. Will I be taxed on the "income" that I am earning from my friend even though it isn't a net positive?

[M-MTax]

At best you will only be able to deduct expenses to the extent of income and nothing more. So you can't generate a net loss.

[M-MTax]

Just as a primary rule every day you rent below fair market value is considered a day of personal use.

[Bsch4477]

If you rent your residence at below market value you have to report the income as regular income and not rental income and can’t take any of the deductions associated with rental property. You can continue to deduct mortgage interest and property tax on Sch A as itemized deductions. 

[LenaH]

Yes. As stated by Bsch4477, you must report the income as regular income. You will not have a Schedule E. Since you are considered not renting for profit, you must report this on Schedule 1 (Form 1040), Line 8j. Any deductions (real estate taxes, mortgage interest) are deducted on Schedule A. 

@Jjone 

[Clcole]

Im renting my home 1/2 market value to a friend. How shall I report the income? do I get a deduction of utilities or anything else? Since I am renting my home out my homeowners policy doubled, is that deductible? Should I not claim it as a rental due to it is not market value, if so how do I claim the income? its not much but its enough to claim 6000.

Thank You

[DianeW777]

If  you rent it at less than fair rental value (FRV) then the income is still reportable and taxable, however it is reported differently.  See the information from IRS Publication 527.

• Not Rented for Profit
  If you don’t rent your property to make a profit, you can’t deduct rental expenses in excess of the amount of your rental income. You can’t deduct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year.
  • Where to report.  Report your not-for-profit rental income on Schedule 1 (Form 1040), line 8. If you itemize your deductions, include your mortgage interest and mortgage insurance premiums (if you use the property as your main home or second home), real estate taxes, and casualty losses from your not-for-profit rental activity when figuring the amount you can deduct on Schedule A.

Essentially the expenses are allowed as itemized deductions if you use this.  If not, you would use the standard deduction and the rental income must still be included. Be sure to keep copies of any documents that would support your rental income and expenses allowed.

Other Miscellaneous Income:

1. Sign into your TurboTax Online account
2. Go to Tax Home (left panel)  Wages and Income  section
3. Scroll to  Less Common Income > Select  Miscellaneous Income, 1099-A, 1099-C
4. Select Other reportable Income > Enter a description (----) and the amount after direct rental expense.

@Clcole 

@Clcole