• Only if it's in cash, you don't deposit it, it's not conspicuous, and neither of you report it ... and even then it's not technically tax free, but the IRS can't tax you for income it has no evidence that you've earned. However, if the IRS does have evidence of this income, you'll need to report it, but can also deduct a reasonable percentage of your total housing expenses from the rental income. You'll need to talk to a tax accountant as to what the IRS will consider "a reasonable percentage". With any luck and a little creative accounting, it should be a wash.
  • Per the IRS code, income from any source is income. IRS will not know as long as nobody reports you.

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