My son and daughter-in-law live with me and pay "rent". I live in the house as my primary residence. How do I record that income (rent) and can I deduct any of the costs for the house against that income?
If this is just family cost sharing there is no need to enter anything about it on an income tax return. Do you have any sort of written rental/lease agreement with them?
No I don't but in previous years I declared rental income - that was when I did not live in the house. I moved back in full time in 2018 and they still pay me something each month - it varies and no lease or written agreement.
I think no you do not do anything tax - wise with it, but since you have treated the house as a rental property in the past, we need some thoughts from another "Champ" named Carl who knows more about rental issues than I do.
in previous years I declared rental income - that was when I did not live in the house.
I assume that prior to moving back into the house in 2018 that the property was 100% rental and all rental income and expenses were reported on SCH E.
I moved back in full time in 2018
That tells me that at an absolute minimum, you converted to house back to personal use with an effective conversion date of at least on day after the last renter moved out. That would stop depreciation on the program on that date you converted it back to personal use. (This is what you want for tax purposes.)
and they still pay me something each month - it varies and no lease or written agreement.
Hopefully you did "NOT' convert a part of your house back to rental business use. With no written agreement and the fact that it is family that lives in the house with you, that could be considered a cost-sharing arrangement. This is provided that you would not show a taxable profit if you did claim the income on SCH E as rental income after converting a part of your house back to rental business use.
Now without a written agreement there's generally no problem with not reporting the income in what I see as a cost sharing arraignment. But you also can't claim any rental expenses. Additionally, you have no need to depreciate the property (or that portion classified as rental) either, as would be required by federal law, otherwise.
There's pros and cons to a cost sharing arraignment for both parties.
Pros for the non-owner:
1) They only pay a factional share of all the utility costs.
2) The only pay a fractional share of the property taxes.
3) The only pay a fractional share of the mortgage payment.
4) They only pay a fractional share of the maintenance costs on the entire property.
Cons for the non-owner.
1) If their state offers a renter's credit, they can't claim any portion of it.
2) They can't deduct any of the mortgage interest or insurance that is paid by the property owner.
Pros for the property owner:
1) They don't have to deal with the additional paperwork of the SCH E.
2) They get to deduct all of the mortgage interest on SCH A, regardless of who actually may have paid it, or contributed to it.
3) If their state offers a renters credit, the owner gets the full credit allowed. The other occupants sharing expenses with the owner don't get anything.
4) with a cost sharing arraignment, you don't depreciate the property. That means when you sell the property there is no depreciation to recapture. Depreciation recapture increases your AGI and in some cases can increase it "just enough" to bump to into the next higher tax bracket.
Cons for the property owner:
1) If there are any "personal issues", and the non-owner has established your house as their legal residence in aacordance with local and state residency requirements, good luck getting them out or evicting them if things don't work out after a period of time, such as if they stop paying their share of the expenses. It's damn near impossible without a written rental contract or other type of living arrangement in writing.
2) If the non-owner is injured or something in your house and they sue you for liability and win, you could have problems with your insurance company paying out on that. The insurance company can argue that you were utilizing the property for rental business purposes, which is not a purpose it is insured for. Generally (and with some exceptions) a homeowner's policy insures for liability "while the property is being used as your residence, 2nd home, vacation home or other personal pleasure use". It does not insure for liability incurred while using the property for business purposes, or any other purpose not specified in the policy.
Finally, note this for your specific situation.
Since the home was 100% rental before you moved back in, in 2018, if you now make it less than 100% rental the Turbotax program has a hard time dealing with the depreciation from that point on. Now there is "a way" to "make it work" so the program will track things correctly when it comes to depreciation. It's kind of a "going around your elbow to get to your thumb" thing. But it does work so that the program will "do the math" with the depreciation correctly.
Overall, I would highly suggest you just treat the current situation as a cost sharing arrangement if you feel the current conditions will allow it and justify it. Generally, it's no problem when cost sharing with family.