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Here's my take on this.

You're not renting out the rooms to make a profit, you're doing it to help out a family. So you don't have a profit motive. That affects your income and deductions.

I would report the income as other income on your tax return. You're already deducting your mortgage interest and property taxes, so there's no change there.

But you do need to calculate up an allocation of those expenses to the rent you receive. Using square footage or room counts might be a reasonable allocation method.

Once you do that, apply the allocation percentage to your interest and taxes, and subtract that off of your rental income. If there is anything left, you can also allocate utilities, repairs, and other expenses. Deduct those as miscellaneous itemized deductions, subject to the 2% of AGI threshold. But only take enough of those to get your net down to zero.

You may or may not get a benefit from those deductions, depending on how large they are and what other misc deductions you have.

--Peter
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