finer points of renting a room in to a family member

[Tom Hoffman]

I found this forum searching for information on Schedule E and owner occupied rentals.

I'm confused about some of the finer points of renting a room in an owner occupied rental. This isn't my situation, but one of a family member who has asked me what I think.

House is owned by family member, let's call this the RentingFamilyMember. That family member rents to a sibling, let's call this the SilingRenter. SiblingRenter pays market rent. RentingFamilyMember is not in this to make money and would not rent out a room to a stranger. In the past, RentingFamilyMember has filed Schedule E and apportioned expenses by rental percentage, including mortgage interest and real estate taxes between Schedule E and Schedule A. No depreciation is being claimed.

RentingFamilyMember has a few questions, which may be mutually exclusiuve:

(1) Can RentingFamilyMember just quit filing Schedule E altogether and call this some sort of cost sharing arrangement? RentingFamilyMember is not interetsed in making money, just not paying the food, utilities, etc. of the SiblingRenter.

(2) RentingFamilyMember's AGI is too high and Schedule E passive losses are limited. It would reduce RentingFamilyMember's taxes if the percentage of mortgage interest and real estate taxes between Schedule E and Schedule A is different from the rental percentage. That is, assume the house is 50% rented out, it would be more advantagoes to have the mortgage interest and real estate taxes split between Schedule E and Schedule A as 25%/75% rather than 50%/50%. It seems obvious you cannot increase the Schedule E percentage beyond the rented percentage, but is that true of the opposite?

(3) Remember, RentingFamilyMember does not claim any depreciation on Schudule E. Assuming RentingFamilyMember continues to file Schedule E, would/how does that affect the real estate capital gains exemption on a future sale?