My sister rents a room in our house. where or how to declare that income?

[drgn4sr633]

how to declare income from a room rental

[xmasbaby0]

Sometimes arrangements like that are just considered to be family cost sharing, which is not entered on a tax return by either you or the person "renting" the room.   Do you have some sort of written rental agreement and is she trying to use the rent as a credit on a state tax return?

[Vanessa A]

Does she rent it at Fair Market Value or does she rent it as a contribution to shared family expenses?  If this is just her contributing to the cost of living in the house, you do not need to declare this income as rental income.  It would just be shared expenses.

If however, you are charging her fair market value for the rent, then you would need to enter it on Schedule E and you could enter the expenses associated with the rental. 

To enter the Rental income and expenses select the following:

1. Federal
2. Wages and Income
3. Rental Properties and Royalties
4. Walk through the steps answering the questions as they apply to you
5. When you get to the question regarding what type of property you can choose single home (if that is the type of home you live in)
6. Then on do any of these situations apply select I rent out part of my home
7. You will then be given the option to enter your expenses.  You can select enter the full amount and let TurboTax calculate for you or you can calculate the amount that applies to the rental portion.
8. You will also be able to list your house as an asset for depreciation even though it is just a room, the property would still be subject to depreciation. 

If she has full use of the house, you can split everything by the number of people in the house and her percentage of the bills to the rental expenses.  If she does not have full use of the house, then you may need to do a little more calculating.  Otherwise, if she only uses a portion of the house, you would need to allocate expenses based on her percentage of the house.

If she is renting the room and it is not at FMV, but it is not shared expenses, the IRS would consider this to be personal use property.  You would still include the rent she pays you as income, but you would only be able to deduct expenses up to the income you receive from her.  As you walk through the questions in the rental section, you will be asked questions to determine whether it is personal use or not.