You don't. You report the lower income. If this is the only rent you could get, then it is not below Fair Rental Value.
If you are renting to a friend or family member at a reduced rent, that is another situation.
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 as Other Income. 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.
