If you rent a vacation home at below market value it is considered Personal use. You don't report income or expenses

Section 280A does not say don't report the income. It does limit the deductions.

How do you report income when it is considered personal use only, no rental use at all

Then there wouldn't be any income to report.

Here we have $12K income.

Section 280A has to do with disallowance of expenses  in connection with business use of home. It seems to me the daughter is just giving the parents a thank you gift for letting her use the families personal vacation home.

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@Terry53029 wrote:

It seems to me the daughter is just giving the parents a thank you gift for letting her use the families personal vacation home.

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That is not what the OP said.  The OP said she is paying $1000 in rent to live in the home.

And a Gift is a no-strings-attached thing.  It seems like the parents are expecting the $1000 a month, and if she quit paying, the parents would question her on it.  That would NOT be a Gift.

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@Terry53029 wrote:

Section 280A has to do with disallowance of expenses  in connection with business use of home.

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Yes, this a rental of their home, therefore 280A applies.

Like you said "that is what the OP said" What would the clients say

It is very unlikely the client would say "we are letting her stay there for free, but she does give us some thank-you gifts".

The OP said it is rented at below market rate therefore no business, it is personal use only

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@Terry53029 wrote:

The OP said it is rented at below market rate therefore no business, it is personal us only

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You may want to look at 280A again.

@TaxGuyBill This is the general rule of 280A

(a)General rule

Keep reading.  Go down to (d).

Throughout the complete section it keeps saying "for which such unit is rented, or is held for rental, at a fair rental".

@Terry53029   I'm trying to figure out what you are trying to argue.  Maybe we are just miscommunicating.

Fact #1:  The OP said it was rented.  There is no evidence otherwise.  That means it is income.

Fact #2:  The OP said it was rented as less than Fair Market Value.  If you carefully read 280A(d), you will see that is considered as personal use, therefore no deductions are allowed (except mortgage interest and real estate taxes on Schedule A).

So what are you trying to say?

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@Terry53029 wrote:

Section 280A has to do with disallowance of expenses  in connection with business use of home. It seems to me the daughter is just giving the parents a thank you gift for letting her use the families personal vacation home.

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I agree, 280A is a red herring (unless we circle back and start talking about expenses).  In terms of income, that's section 61.  "Except as otherwise provided in this subtitle, gross income means all income from whatever source derived."

The income is taxable income.

Lets not forget Section 102 "Gross income does not include the value of property acquired by gift, bequest, devise, or inheritance".

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@Terry53029 wrote:

Lets not forget Section 102 "Gross income does not include the value of property acquired by gift, bequest, devise, or inheritance".

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I agree with that, but there is NOTHING that indicates that this is a Gift.

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@Terry53029 wrote:

Lets not forget Section 102 "Gross income does not include the value of property acquired by gift, bequest, devise, or inheritance".

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Or section 119, Meals or lodging furnished for the convenience of the employer.

Look, we both can introduce code sections that are completely irrelevant to the facts presented in this discussion. 🙂

I'm really not into quoting tax codes (or reading them for that matter), but I am curious about one aspect.  Do they actually have a signed lease agreement with the kid, or is the kid just reimbursing the folks for some of the costs incurred in that property while she is breathing their air?

This is a case where there are tax laws, and then there is common sense.

If I were preparing these client's returns, I would not be reporting any rental income received and would simply consider this property as a second home owned by the taxpayer.

If it weren't the daughter, and instead a non-relative renting the property, I would have a different response.  But this isn't really a rental situation as we classically understand it, and it is silly to parse the laws and text of the IRS code.

For all those who disagree:  if an adult child moves back into the family home and pays some rent because the parents don't want them there as freeloaders, are you going to generate a Schedule E to capture this "rental income"?

As we all know intent is in quite a bit of tax law. I believe renting a 2nd home at below market rates is taxable income, but I think that would apply to some one renting to strangers just to offset some expense, but not to my kids. 

A great many different views and answers here.  I have found conflicting answers online as well.  

Are you seriously arguing that income isn't taxable unless it's generated by a business?  Check out Pub 527, page 16, "Not Rented for Profit".  "Report your not-for-profit rental income on Schedule 1 (Form 1040), line 8j"

@CedarBill 

Do you want to finish the rest of that quote from Pub 527 as to where the expenses should be reported?

Wasn't this poor horse beaten enough last year?

Rick, obviously not 🤣

Schedule A . . . which unfortunately means only mortgage interest and property taxes since TCJA did away with miscellaneous deductions