Yes, you need to include the rental income on your return. Because it is rental income, as you enter this income into TurboTax, TurboTax will generate a Schedule E, Supplemental Income or Loss, for your return.
It depends whether you can deduct expenses. Whether you rent to family members or not, in order to deduct rental expenses, the rent must be a fair market rent for the area. This means the rent cannot be at below market rates. If the rent is below market for the area, then you will not be able to deduct any rental expenses even though your granddaughter is living there because the IRS will consider your renting as equivalent to personal use of the property.
Additionally, in order to deduct rental expenses, your granddaughter has to consider your home as a primary residence. If your granddaughter were to move out after a few months, then you may not be able to deduct any rental expenses because the rental period will still be considered as personal use by you.
If you are using TurboTax online, then from the Wages & Income section, scroll down to Rentals, Royalties, and Farm, click on the drop down arrow if necessary and select Rental Properties and Royalties (Sch E). Enter your information. If you are using TurboTax CD/download, the process is similar.
@Rshc
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