tax reporting for "rental" property

[mollyanna58]

My friend bought a house for his parents to live in.  They do not pay him rent, but they do pay all the expenses: utilities and property taxes. 

Does he need to declare these payments as income?  Does he have to take depreciation on the  house as a rental property?

Thanks.

[taxref]

Based on your description, there is no landlord-tenant relationship in this case.  Consequently, your friend does not have to report anything from this activity, including depreciation.  

[Deleted]

Related question - I'm subletting my co-op apartment at a loss (mortgage payment+maintenance>sublet rent). Looking at a Schedule E, I see a spot to list maintenance and mortgage interest, but not the mortgage payment itself. Can that not be applied to reduce the net rental income? If so, how/where?


Thanks!

[taxref]

"... but not the mortgage payment itself. Can that not be applied to reduce the net rental income? If so, how/where?"

The principal portion of a mortgage payment can never be deducted.  Rather, you must claim depreciation expense instead of loan principal.  For residential real estate, depreciation is claimed straight line over 27.5 years.  The IRS has published tables for the exact percentages.  That depreciation schedule is available online.  

Consequently, the amount of depreciation claimed annually can be either more or less than the mortgage principal paid each year.  Land is not depreciable, so the value of the land must be deducted from your depreciable basis in the home.  Since it is a co-op, though, your land value would be minimal.  

On a related matter, are you renting the co-op for fair market rent?  If not, do not use Schedule E to report your rental income.  Use the hobby income rules instead (gross rents go to Line 21 of your 1040, expenses not to exceed rental income can only be deducted as a miscellaneous itemized deduction).