I charge my son/his friend rent below market rate, but I made a profit on my rental home since expenses are low (no mortgage). I use Schedule E for income/expenses?

[sugarspice]

With low expenses I forecast to amke a profit every year.

[Ashby · Accepted solution]

The rent you receive is taxable income, even if you are charging less than fair market value in rent.  If you do not rent your property to make a profit, you can deduct your rental expenses only up to the amount of your rental income. 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.

Where to report.   In this case you won't report your rental activity on Schedule E or through the interview for Rental Properties in TurboTax.  Report your not-for-profit rental income by going to Federal Taxes>Wages & Income>Less Common Income>Other Reportable Income.   If you itemize your deductions, you can include ALL of your mortgage interest and real estate taxes as a second home in TurboTax.   

[Carl]

Bottom line is, what you call a 2nd home is "in fact" rental property. The income/expenses for that get reported on SCH E. What you charge for rent doesn't matter.

[Ashby]

@Carl Really?? A rental property at below market value? If you rent out the property to a relative and fail to charge fair market rent, the IRS will no longer recognize the property as a rental.

[sugarspice]

@Carl  Thanks.

[Ashby]

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 21 or Form 1040NR, line 21. If you itemize
your deductions, include your mortgage interest
(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
<a rel="nofollow" target="_blank" href="https://www.irs.gov/pub/irs-pdf/p527.pdf">https://www.irs.gov/pub/irs-pdf/p527.pdf</a>

[sugarspice]

@TurboTaxAshby Thanks.

[Carl]

"the low rent his roomate/he pay?"
While the roommate may be a friend, I see nothing indicating they are in any way related to the property owner.

[Ashby]

@Carl It's her son and his friend. Also, below market value is below market value.

[Ashby]

@Sugar Spice No, the expenses used to be deductible as miscellaneous itemized deductions subject to 2% floor. Those deductions have been eliminated because of tax reform. In your case, you can only deduct property taxes.

[sugarspice]

@TurboTaxAshby Because my expenses are so low (no mortage), I will still make a profit at my lower rental rate I am collecting from my son and his roomate.  So, I believe I am a For Profit landlord and can use the normal Schedule for my rental income and expenses.  Does that seem right?

[Carl]

Without a mortgage, you only have guaranteed expenses/deductions of property taxes, insurance and depreciation. So it's perfectly possible you could show a profit, even if renting below FMRV. So if line 26 of the SCH E shows a positive number, you're making a profit, and a taxable profit at that.