renting vs cost-sharing with a roommate or family member

[mkenney17]

While I understand that rental income at a fair rental value is considered "rent" for the purposes of the IRS, is there a difference when the roommate is paying significantly less than the fair rental value that one would otherwise receive if renting a room out to someone? 

To put it another way... Is the (significantly less than normal rental) cost-sharing amount considered as "rental income" in the eyes of the IRS? If not, what type of "income" would it be considered?

Is it even considered "income" at all, since it is simply splitting bills and other costs of living at a given residence?

I've researched IRS pub 527 and IRS pub 946, but the above still seems less than clear. 

Any help would be so greatly appreciated. Thank you in advance for your time!

[Hal_Al]

Q. Is the (significantly less than normal rental) cost-sharing amount considered as "rental income" in the eyes of the IRS?

A. No.

Q. If not, what type of "income" would it be considered?

A. It is not income, at all.

Q. Is it even considered "income" at all, since it is simply splitting bills and other costs of living at a given residence?

A. No. 

If this is merely a cost sharing arrangement where the amount paid is below fair market rental, there would be no reportable income to you. If the “rent” amount is fair market value, or more, there is still some question as to whether you even have to report it, as it almost always comes out zero. Most people take the attitude that it is not income; it's just room mates sharing expenses and ignore it. Family, as opposed to unrelated roommates, makes that position even  stronger.

[TomD8]

To support @Hal_Al 's answer:

From IRS Publication 527, page 19:

"If you use a dwelling unit as a home and you rent it less than 15 days during the year, its primary function isn’t considered to be a rental and it shouldn’t be reported on Schedule E (Form 1040). You aren’t required to report the rental income and rental expenses from this activity. Any expenses related to the home, such as mortgage interest, property taxes, and any qualified casualty loss, will be reported as normally allowed on Schedule A (Form 1040)."

A day rented below FMV is not a rental day.

[mkenney17]

Thanks, TomD8 and Hal_Al!

So, in the case of the text you shared, if all that one does is cost-share with someone, and never charges actual “rent” at FMV, would it mean that the home which the owner uses as a primary residence while sharing costs with another is NOT considered to be in service as a rental property (and thus, depreciation does NOT become necessary)?

[NCperson]

just adding to the thread, the IRS does  state that a day of rental below FMV is not a date of rental, but rather a day of personal use.  So, in effect, each day is either a day of personal use or a day of rental - they are distinct and disjoint: 

Left side: page 18: 

https://www.irs.gov/pub/irs-pdf/p527.pdf

What is a day of personal use? A day of personal use of a dwelling unit is any day that the
unit is used by any of the following persons.
1. You or any other person who owns an interest in it, unless you rent it to another owner as their main home under a shared equity financing agreement (defined later). However, see Days used as a main home
before or after renting, later. 

2. A member of your family or a member of the family of any other person who owns an interest in it, unless the family member uses the dwelling unit as their main home and pays a fair rental price. Family includes only your spouse, siblings, half siblings, ancestors (parents, grandparents, etc.), and lineal descendants (children,
grandchildren, etc.). 

3. Anyone under an arrangement that lets you use some other dwelling unit.
4. Anyone at less than a fair rental price

[TomD8]

@mkenney17 --

Cost-sharing with a roommate does not make a home a rental property.  

[mkenney17]

Is there any guidance regarding what may be considered a cost of living that may be shared among roommates in a cost-share arrangement that is below FMV?

While electric and utilities are an obvious "yes" for costs of living that may be shared, what about things like...
- lawn care 
- pest control

- home insurance

- property taxes

- home mortgage interest (NOT including mortgage amounts paid towards the principal)

Also, if there happens to be any guidance in an IRS pub on this topic, I would LOVE to review that info... I have yet to find it when I recently looked through IRS pub 527.

Again, I truly appreciate everyone's time and input. Thank you!

[NCperson]

aren't all those other things reflected in the rent you are asking the other person to pay?

are you asking a tax question here? or simply trying to figure out how much to ask the other person to pay. 

Given you are renting at below FMV, none of the items you list relate to your tax return, other than property taxes and interest on the mortgage - you can deduct 100% of all of that (up to any limitations imposed on Schedule A)  on your tax return (assuming you itemize).  You don't have to reduce any of it because you are sharing costs with someone else. 

re-read page 17-18 of Pub 527.  There is a LOT of discussion of dividing expenses.  But the division only occurs when you have personal days and rental days.  When you are renting below FMV, they are all personal days and therefore there is no need to divide expenses. 

[TomD8]

"Is there any guidance regarding what may be considered a cost of living that may be shared among roommates in a cost-share arrangement that is below FMV?"

No, because there's no tax issue here.  It's up to you and your roommate to decide which costs to share.