Second option: Ignore 'rent' paid, if inconsequential. Consider her contributions as family members sharing resources/expenses.
It is considered a Not-For-Profit Rental. Since you do not carry on your business or investment activity to make a profit, you cannot use a loss from the activity to offset other income. You do not therefore, need to depreciate.
Not Rented for Profit
Where to report. Report your not-for-profit rental income on Form 1040 or 1040NR, line 21. If you are filing Form 1040 and you itemize your deductions, you can include your mortgage interest and any qualified mortgage insurance premiums (if you use the property as your main home or second home), and real estate taxes on the appropriate lines of Schedule A (Form 1040). You cannot deduct a loss or carry forward to the next year any rental expenses that are more than your rental income for the year.
Presumption of profit. If your rental income is more than your rental expenses for at least 3 years out of a period of 5 consecutive years, you are presumed to be renting your property to make a profit.
More information. For more information about the rules for an activity not engaged in for profit, see Not-for-Profit Activities in chapter 1 of Pub. 535.
- Click on Federal Taxes
- Wages and Income
- You may need to click Jump to Full List, Show me everything or I’ll choose what I work on depending upon your situation and the TurboTax version you are using.
- Scroll to the very bottom; Less Common Income; Click Show more (if start isn’t displayed)
- Click Start across from Miscellaneous Income, 1099-A, 1099-C
- At the “Other Taxable Income” screen, enter your description – Not for Profit Rental and then amount of income you received.
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