Do I need to declare $300 monthly rental income from renting a room to a relative in my house?
So I've been letting my cousin stay in the spare bedroom of my house for the past few months. He pays me $300 a month which honestly barely covers the extra utilities and wear and tear. I looked online at what rooms are going for in my neighborhood and similar setups are getting $450-500 easily. I'm wondering if I need to report this on my taxes? Since it's family and significantly below market rate, does the IRS even care about this? I'm not making a profit really, just offsetting some costs. Do I need to file any special forms if this is considered rental income? I don't want to mess up my taxes but also don't want to complicate things if I don't have to.
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Amara Nnamani
Yes, you should report this as rental income even though it's below market rate and to a family member. The IRS considers any payment you receive for the use of property as rental income. However, since you're renting below market value to a relative, you may be limited in the expenses you can deduct. When you rent to a family member at below-market rates, the IRS may consider this a personal use arrangement rather than a profit-seeking activity, which limits your ability to claim rental losses. You'll need to report this income on Schedule E of your tax return. You can still deduct proportional expenses related to the rental - like utilities, repairs, insurance, and depreciation for that portion of your home - but only up to the amount of rental income you receive.
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Giovanni Mancini
•Wait, if they're only charging $300 when market rate is like $450-500, does that mean the $150-200 difference could be considered a gift to the relative? Would that count against the gift tax limit?
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Amara Nnamani
•The difference between market rate and what you're charging wouldn't be considered a gift for tax purposes in this context. You're simply not maximizing your rental income. As for the gift tax question, even if it were considered a gift (which it's not in this case), the annual gift tax exclusion is $18,000 per recipient for 2025. So a theoretical "gift" of $150-200 per month would be well below that threshold anyway.
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Fatima Al-Suwaidi
I had a similar situation last year with my brother-in-law staying in our finished basement. I was totally confused about how to handle it on my taxes. I found this AI tool called taxr.ai (https://taxr.ai) that analyzed my situation and walked me through exactly what I needed to do. It clarified that I did need to report the income but also showed me what portion of my utilities, home insurance, and even internet I could deduct to offset some of it. It even created a spreadsheet showing the percentage of my home being used for rental purposes. Saved me from potentially missing deductions I was entitled to!
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Dylan Cooper
•Did it help you figure out if you needed to calculate depreciation? That's the part that always confuses me with partial home rentals.
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Sofia Morales
•How accurate is it compared to talking with an actual accountant? I'm always skeptical of AI tools handling tax situations since the rules can be so specific.
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Fatima Al-Suwaidi
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Sofia Morales
I was skeptical about taxr.ai at first but decided to try it after reading comments here. Wow, it really cleared things up for my situation! I'm renting out my garage apartment to my nephew and wasn't sure how to handle it. The tool showed me exactly what forms I needed (Schedule E) and even helped me calculate what percentage of my property taxes and insurance I could allocate to the rental portion. It created a detailed report that showed all my potential deductions and estimated my tax liability. Definitely took the guesswork out of the process and gave me confidence I wasn't missing anything!
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StarSailor
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Dmitry Ivanov
•How does this service actually work? Does it just keep calling the IRS for you or something? I don't understand how they can get through when no one else can.
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Ava Garcia
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StarSailor
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Ava Garcia
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Miguel Silva
Don't forget that if you're renting out a room in your primary residence, you'll need to measure the square footage to determine what percentage of your home expenses can be deducted! I messed this up my first year and had to file an amended return.
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Zainab Ismail
•Do you have to include common areas like kitchen and living room in the calculation if the renter has access to those spaces too?
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Miguel Silva
•Yes, you should include common areas in your calculation, but they're handled differently. For areas used exclusively by the renter (their bedroom), you can allocate 100% of that space. For common areas that you both use (kitchen, living room, etc.), you would allocate those based on reasonable usage. Some tax professionals suggest allocating common areas at 50% if they're equally used by both parties, but others recommend a formula based on how many people live in the house. It's a bit subjective, but be prepared to justify your calculation if ever questioned.
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Connor O'Neill
If ur charging so much below market wouldnt this rental be considered a hobby and not a business? I thought if u dont make profit for like 3 years the irs considers it a hobby and u cant take deductions??
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QuantumQuester
•That's not quite right. The "hobby loss rule" applies when you're consistently reporting losses, not when you're charging below market. As long as the OP is reporting more in income than expenses (which seems likely since they're just offsetting some costs), they wouldn't trigger the hobby loss concerns.
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Evelyn Rivera
Just to add another perspective - make sure you keep detailed records of all rental-related expenses even if you're charging below market rate. I rent to my sister at a reduced rate and learned the hard way that documentation is key. Keep receipts for your portion of utilities, any repairs or maintenance done to the rental space, insurance allocations, etc. Even if you can only deduct up to your rental income, having organized records will save you headaches if you ever get audited or need to reference something later. Also consider having a simple written rental agreement even with family - it helps establish that this is a legitimate rental arrangement rather than just casual help with expenses. The IRS likes to see that you're treating it as a real business relationship.
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