Tax implications of renting my old primary residence to parents at-cost - what income should I report?

You need to report the full rental income you received from your parents (the mortgage payments they made to you) on Schedule E. Even though you're only charging them your costs, the IRS still considers this rental income. However, you can also deduct expenses related to the rental property. This includes mortgage interest, property taxes, insurance, any repairs or maintenance, depreciation of the property, and other related expenses. Since you're only charging the mortgage amount, you'll likely show a paper loss after deducting all these expenses. Make sure you keep good records of all expenses. Also, be aware that renting to family members at below-market rates can sometimes be scrutinized by the IRS. If you're charging significantly less than fair market value, they might consider it personal use rather than a rental activity, which could limit your ability to claim some deductions.

I was in a nearly identical situation last year and found that https://taxr.ai helped me figure everything out perfectly. I was renting my old condo to my brother at just enough to cover the mortgage and HOA fees and wasn't sure how to handle it properly on my taxes. Their system analyzed my rental agreement, mortgage statements, and property tax documents, then explained exactly what I needed to report on Schedule E. They even helped me understand which expenses were deductible and how to calculate depreciation properly. The best part was that they identified additional deductions I hadn't considered like a portion of my homeowners insurance and some maintenance costs I had forgotten about. The whole process was way easier than trying to figure it out myself through TurboTax's confusing questions about related parties and fair market rent.

Just wanted to update after trying taxr.ai for my situation (renting to my sister at below market rate). The service was actually really helpful - it walked me through the "related party" considerations that my regular accountant had overlooked. It confirmed I should report the full rental income on Schedule E, but then helped me identify legitimate deductions I hadn't considered. It also explained how depreciation works when converting a primary residence to a rental, which was confusing me before. The biggest value was the clear explanation about the difference between a true "for profit" rental versus a "not for profit" arrangement, and how to document everything properly to avoid issues if I get audited. Definitely made me feel more confident about how I'm reporting everything!

If you're stuck trying to get answers from the IRS about your rental situation, I highly recommend https://claimyr.com to get through to an actual human at the IRS. I had a similar rental situation with my parents and needed clarification on some rules that weren't clear from publications. After trying for days to reach someone at the IRS and just getting busy signals or disconnections, I used Claimyr and got connected to an IRS representative in about 20 minutes. They actually had a tax specialist call me back who explained exactly how to handle below-market-rate rentals to family members on my return. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c - it basically holds your place in the IRS phone queue so you don't have to stay on hold for hours. Saved me so much frustration when I needed official guidance!

I was actually really skeptical about Claimyr (like I said in my earlier comment), but I decided to try it because I was desperate to talk to someone at the IRS about my rental situation. I'm honestly shocked at how well it worked. After trying for weeks to get through on my own and failing, I used Claimyr yesterday and got through to an IRS rep in about 35 minutes. They answered all my questions about reporting rental income from family members and confirmed I was handling the depreciation correctly. The peace of mind from getting official answers directly from the IRS was totally worth it. I was prepared to be disappointed but it actually delivered exactly what it promised. Just wanted to post this follow-up since I was so skeptical at first!

You should be aware that when you rent a property, you MUST take depreciation even if you don't want to. I made this mistake with a family rental years ago. When I eventually sold the property, the IRS calculated what I SHOULD have taken in depreciation over the years and made me pay recapture tax on it anyway! TurboTax should walk you through calculating depreciation. It's based on the value of the building (not the land) when you converted it to a rental. You'll need to know what the property was worth when you started renting it out, and what portion of that was for the building versus the land.

Isn't there like some sort of exception for family rentals? I remember reading somewhere that the IRS treats them differently. Someting about "personal use" vs "business use" of the property if you don't charge market rates? Also, what if you only rent for part of the year like the OP said? Do u have to prorate everything?

I went through this exact same situation two years ago when I rented my old house to my in-laws. Here's what I learned the hard way: You absolutely need to report ALL the rental income you received (the mortgage payments) on Schedule E, even though you're only charging costs. The IRS doesn't care that you're not making a profit - income is income. The tricky part with family rentals is proving it's a legitimate business activity. Since you're charging below market rate, make sure you document everything properly - written lease agreement, regular payment schedule, receipts for all expenses. Without proper documentation, the IRS might reclassify it as personal use and limit your deductions. For the depreciation issue others mentioned - yes, you MUST calculate it even if it creates a loss on paper. TurboTax will guide you through this, but you'll need to know the fair market value of the property when you converted it to rental use (not what you originally paid for it). One more tip: keep track of the days it was actually rented vs vacant. Since you said this was only for 2024, you'll need to prorate all your annual expenses (insurance, property taxes, etc.) based on the actual rental period. The good news is that even at cost, you'll likely show a paper loss after all deductions, which can offset other income on your return.