Hi, rrhoades15!
With regards to rental property, IRS Publication 527, Residential Rental Property, is the guide on how to treat for income tax purposes. See here for a link to this Publication which you can refer to if you want to review in more detail than the below response: IRS Pub 527
Ordinary, I would say that if you had rental losses that you were not able to deduct in prior years, then those losses become unlocked, and you can utilize them in the year you sold the rental property.
However, the answer to your question will unfortunately have a very different tax implication, as you indicated two facts that drastically changes how the IRS views the property: the house was rented to your son and his friends, and the rent paid was at a discount. Because your son is one of the tenants, and because it was rented at a discount, the tax rules are significantly different than if it were rented at fair market value to unrelated parties.
According to IRS Publication 527, if you don’t rent your property to make a profit, you can’t deduct rental expenses in excess of the amount of your rental income. You can’t deduct a loss or carry forward to
the next year any rental expenses that are more than your rental income for the year.
Additionally, the IRS would consider any days when a member of your family uses the dwelling to be considered a day of personal use (a member of your family is defined as spouse, siblings, ancestors, and lineal descendants, so your son would be considered a member of your family) - which means the entire time your son lived in the house, it was considered personal use dwelling, not a rental property. Note that if your son used the dwelling as their main home and pays a fair rental price then it would not be considered a personal day of use; but as you indicated that he pays at a discount, the days he lived there would all be considered personal use days.
These situations often arise in the case of property owners who rent to their children. In your case, as you're renting to your son and friends at a discount, even though you are receiving rent payments, because the rate falls below market value and because your son is living there, the property would be considered a personal residence.
In your situation, you would report the rent received on Schedule 1 of your tax return, under "activity not engaged in for profit income", and the only expenses you would be able to deduct would be personal mortgage interest and property taxes on Schedule A, if you itemize your deductions.
As for selling the Condo: any normal repairs and maintenance costs, in addition to furnishings, would all be considered personal costs, not deductible. However, to the extent you made capital improvements to the home (i.e. things that increase the value of the dwelling or extend the life of the dwelling), you would add these improvements to your cost basis, to minimize any potential capital gain from the sale of the property.
If you have been reporting this on Schedule E of your tax return, that has not been the correct place to report given the discounted rent amount, and you should consider amending your prior year tax returns accordingly.
I am sorry to be the bearer of bad news, but I encourage you to review Publication 527, as it would provide a lot more details than what I summarized above. Additionally, I encourage you to take a good look at the rate you were charging - you said it was at a discount, but did not specify what type of discount, and how you determined it was rented out at a discount? Perhaps engaging an expert familiar with rental properties in the area of the house can verify whether or not it was rented out at fair value. In the end, though, it sounds like it was rented below market value, and was rented to a related party, so the income tax treatment would be as I described above.
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