How to report rental income from parents renting our old primary residence - first time landlords

You need to report the full rental income on Schedule E, even though you only charged your parents enough to cover the mortgage. The IRS requires reporting of all rental income regardless of profit. The good news is you can also deduct expenses related to the rental property, including mortgage interest, property taxes, insurance, repairs, and depreciation. Since this was previously your primary residence, you'll need to calculate depreciation starting from when it became a rental property. When you enter this in TurboTax, it should guide you through the rental property section and automatically generate Schedule E. Make sure you document everything clearly since renting to family members at below-market rate can sometimes trigger additional IRS scrutiny.

I was in a similar situation last year with my in-laws renting our old house. Used taxr.ai (https://taxr.ai) and it was super helpful for figuring out how to handle the Schedule E reporting. The tool analyzed our mortgage statements and property tax docs, then told me exactly what I could deduct. Saved me hours of research trying to figure out depreciation calculations and what expenses were legit deductions. Really helped with understanding what documentation we needed to keep too, especially since we were renting to family which apparently can get extra scrutiny from the IRS. The guided process made it way easier than trying to figure it all out through TurboTax's confusing interview process.

Ok I have to admit I tried taxr.ai after my skeptical comment and it was actually really helpful. I've been renting a condo to my brother and was completely confused about depreciation calculation and what counts as "fair market rent" when dealing with family. The document analyzer caught things in my insurance policy I totally would have missed as deductions. It clarified that I needed to charge at least 80% of fair market value to claim all my expenses, which I wasn't aware of (luckily I was charging my brother close to market rate). Really specific guidance that saved me from potentially expensive mistakes. Definitely more helpful than the generic advice I was finding online.

If you're having trouble getting clarity on your rental situation, you might want to try calling the IRS directly for guidance. I know that sounds like a nightmare, but I used Claimyr (https://claimyr.com) to get through to an actual person at the IRS after spending days trying to get someone on the phone myself. They have this system where they wait on hold for you and then call you when an agent is on the line. You can see how it works here: https://youtu.be/_kiP6q8DX5c I had a similar situation with renting to family members and needed to understand some specifics about depreciation and what qualified as "fair market value" when renting to relatives. The IRS agent was actually really helpful in explaining exactly what I needed to document and how to properly report everything.

I have to eat my words about Claimyr being a scam. After my skeptical comment, I decided to try it because I was desperate to resolve a rental property question about depreciation that was holding up my taxes. Honestly, I was shocked when I got a call back with an actual IRS agent on the line about 90 minutes after I submitted my request. The agent walked me through exactly how to handle depreciation for my rental property and confirmed I was reporting family rental income correctly. Totally worth it just for the time saved not listening to the IRS hold music for hours. Definitely using this every time I need to call any government agency from now on.

One thing nobody mentioned yet - make sure you're tracking utilities separately if your parents are paying them directly. If they're included in what you charge, that's rental income too. And don't forget to look into if your state has any specific rental income reporting requirements that differ from federal.

Does anyone know if TurboTax handles the calculation of depreciation automatically? I hate math and am terrified of getting this wrong!

Just want to add something that might help - when you're calculating what percentage of your home's value is attributable to the building vs land (for depreciation purposes), you can usually find this info on your county tax assessor's website. They typically break down the assessed value between land and improvements. Also, since this was your primary residence before becoming a rental, make sure you're using the lower of either your original cost basis or the fair market value when you converted it to rental use. This is called the "conversion rule" and can actually save you money if your home decreased in value between when you bought it and when you started renting it out. One last tip - keep really good records of any improvements or repairs you make while it's a rental property. Capital improvements get added to your basis and depreciated, while repairs and maintenance are immediately deductible. The distinction can make a big difference on your taxes!