I own a rental house... with my siblings...
Here was a great question we got on a forum for financial advisors: “Mom died recently and left my siblings and I a house. Instead of selling it, we chose to keep it as a rental. How do we report taxes on this? What is the best way to accomplish this?” Strangely… while all of the advisors who responded on the forum addressed the tax ramifications of owning a rental home… I was surprised that none of them identified the potential risks that existed within this arrangement. So… here was our answer:
The IRS treats your rental home like a business, and you should too. The rent you receive is income. The costs you bear (management fees, repairs, property taxes, advertising, utilities, etc) are all deductible against the income that you receive - as is depreciation of the property.
This is all usually captured and reported to the IRS on Schedule E when an individual owns the property. Since multiple owners own the property, then each person would file Schedule E based upon their own proportionate share.
However - since you said that there are multiple owners, then here is a suggestion for you:
First - consult with an attorney - and consider putting the house in an LLC (Limited Liability Corporation). Have the LLC OWN the home. The LLC has an account ONLY for the house rents and bills. Each owner of the house is now an owner of the LLC, and contributes a little bit of money to fund the account - and gets what's left every month after the LLC collects the rent and pays the bills.
In this way, you have HUGE liability protection. In the event of an injury or death - for example, someone falls inside your home and is paralyzed - and then sues you - if they get a judgment in their favor, then, depending upon the laws in your state, it is very likely that they will also come after other assets that you own as well.
However, if you put the house in a multi-owner LLC, then they have to sue the LLC as a viable corporation. The LLC only owns the house, and all that is on the line if you lose the court battle should be the house itself, unless negligence is involved. That way, you are able to "encapsulate" the damage to the LLC instead of having the danger of everything that you and the other heirs own being taken away by litigation. Given that laws vary in each state - again - consult with an attorney who specializes in ASSET PROTECTION (not family law, for example).
To set up an LLC is relatively inexpensive. A CPA can do it for you, or you can usually do it yourself. The LLC will have to file a tax return, but since the situation is so simple, you or one of the heirs could probably do it yourselves, or a CPA would likely do it for a very reasonable fee, given the simplicity in this case. Then, you would simply declare the LLC income on your tax return.
It initially sounds complex - but the asset protection issue here is very important.