My sister in law pays me rent to live in our second home. Is this considered rental income? She is not covering the total mortgage?

[MargaretL]

It depends.  

If you charge rent at the current market value (the value that is generally charged in your area) - yes, it is considered rental income.  The fact that she doesn't cover the entire mortgage simply means that, when reporting your rental income and expenses, your net rental results in a rental loss. You would report rental income as expenses in the rental section.

If you charge the rent below the market value - no,  the income is not rental income and the property is not considered rental property- it is your personal income and your personal residence (2nd home). Please report:

1. income as miscellaneous income (see data entry below), 
2. your mortgage interest, real estate taxes and mortgage insurance premiums as Your Home deductions in the Deductions and Credits section, and 
3. your other rental expenses as miscellaneous itemized deductions 

NOTE: You can deduct all expenses above 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. For example, your rental income is $5000, your mortgage is $2k, your property tax is $1k and your other expenses are $3k...total $6k... you can deduct full interest, full property tax and only $1000 of other expenses...If you exhaust the expenses with the mortgage and property tax, there is no reason for you to enter your other expenses.  

To report Miscellaneous Income:

1. Federal Taxes
2. Wages and Income
3. Scroll down to Less Common Income
4. Select Miscellaneous Income
5. Select Other reportable income, select ‘yes’ and you will be prompted to enter Description and amount - enter your rental income here;

To report mortgage interest, property tax:

1. Federal Taxes
2. Deductions & Credits
3. Your Home - select respective entry for interest or property tax

To report miscellaneous expenses:

1. Federal Taxes
2. Deductions & Credits
3. Other Deductions and Credits
4. Other deductible expenses, select Less Common Expenses - select yes to Less common expenses (program lists investment, appraisal, repayments as examples) - enter your description and amount (remember not to exceed the amount - in conjunction with your other expenses - of total rental income.