Renting out rooms in my home, what's the proper way to deal with utilities for tax purposes?
It's the same result either way.  Say the bills are $600, and you are reimbursed $400. You'd be able to write off $400 as part of the utilities that are common expenses, but then claim the $400 as income.  I'd stick with that, and have contemporaneous records supporting all cash flow. You also can take 2/3 of any other maintenance costs that most homeowners can't. Like snow removal, lawn care, etc.
The money your tenants spent on repairs and maintenance that is otherwise your responsibility is considered rent paid to you (and deductible to the extent you can deduct maintenance expenses, provided you have documentation etc etc). The money your tenants spent on utilities, which is their responsibility anyway, is not considered rent paid to you. Since in your question you seem to be mixing both together, it is hard to accept a claim that the additional $300 spent on utilities and maintenance is enough to bring the rent to the FMV level. Especially since the transaction is between related persons, it may bring additional scrutiny of the IRS. In general, you don't need to keep bills around for more than a few months.  The exceptions are: anything that was itemized on your federal or state income taxes. You want to keep these around for seven years in case of an audit by the IRS brokerage statements buying/selling stocks, bonds, mutual funds, etc.  You need to know how much you bought a stock for when you sell it, to calculate capital gains. information relating to major renovations to your house.  This can be used to reduce the gain when you sell. anything relating to a business, again for tax and valuation purposes. When selling a house, the last years worth of utility bills might be useful, to show potential buyers. However, I get almost all of my recurring bills electronically now.  They get saved and backed up.  In that case, its easier to just keep everything than to selectively delete stuff.  It takes very little space, is easier to find things than in paper files, and is much less hassle when moving than boxes full of paper. Given your clarifying points, it sounds like you are running both businesses as one combined business. As such, you should be able to get just a single HST number and use that. However, let me please urge you to contact a professional accountant and possibly a lawyer, as it is very unusual to be performing these services without a business license, and you may be exposing yourself to civil penalties and placing your personal assets (e.g. your house) at risk. Additionally, it may be beneficial for you to run these as businesses as you can likely write off (more of) your expenses. Its best you start this venture as a Business entity. Whatever the customer pays you is your income. Whatever you pay to the hotel will be your expenses. Apart from this there will be other expenses. So essentially difference between your income and expense will be the profit of the entity and tax will be on the profit. If you do not want to start an Business entity and pay as an individual then please add the country tag, depending on the country there may different ways to account for the funds. My experience (two purchases, Ontario, Canada) is that the property taxes are paid   by whomever is the owner on the date the tax bill comes due.  The bill might be due before the owners even decide to sell.   However: A part of the closing process is a Statement of Adjustments, in which various costs that span the tenure of two owners are split on a per-diem basis.  In your case, there would have been a charge against you of 2/365 of the tax bill on this statement at the time of closing (if you hadn't paid any 2014 taxes) The statement also includes things like flat-rate water bills, monthly cable bills, security system monitoring...  All paid by one owner or the other, but split fairly on a per diem basis at the time of closing... http://www.irs.gov/publications/p936/ar02.html#en_US_2010_publink1000229891 If you still own it, you get to deduct all of it. In my taxes I did online with TaxAct, it asked if I lived there or not and it just mattered which form it filed for me.  With having tenants it was a 'business' form and I assume it would be a standard schedule A for personal.  Either way the deductions are still mine to take. You only need to report INCOME to the IRS. Money which you are paying to a landlord on behalf of someone else is not income. The $1300 turns into $2817/mo over a year. You've identified just over $1700 in expenses, but clearly missed a lot. Use what you wish, Mint, a spreadsheet, a notebook, I don't care. Just track every penny for a time. My property tax is due quarterly, so 3 months is minimum. It takes a year to get a full view of the items that are seasonal. Unless of course, the winter is mild (and your plowing expenses are low) or the summer is rainy (and the water bill for the grass is low.)  Even the above doesn't capture the things that are less regular. The house painting, the heater repair, etc.  The exercise itself is a great first step. As others stated $280 for cable/phone? Once you add the missing $900/mo, we'll know more.  What's really important is that you look at 100% of where the money goes and decide what the priorities are. No one's judging you, we chose the bigger house over eating out and expensive vacations. It's about knowing and understanding your choices. The rental income is indeed taxable income, but you reduce the taxable portion of it by deducting expenses (including mortgage interest, maintenance, insurance, HOA, real estate tax, and of course depreciation). Due to the depreciation, you may end up breaking even, or having very little taxable income. Note that when you sell the property, your basis is reduced by the depreciation you were allowed to deduct (even if you haven't deducted it for whatever reason), and also the personal residence exclusion might no longer be applicable - i.e.: you'll have to pay capital gains tax. You will not be able to deduct a loss though if you sell now, so it may be better to depreciate it as a rental, rather then sell at a loss that won't affect your taxes. Also, consider the fact that the basis for the depreciation is not the basis you currently have in the property (because you're under water). You have to remember that when calculating the taxes. This is not a tax advice, and you should seek a professional help. @Pete B.'s answer is good, but there's an important note to consider for tax purposes.  It's too large for a comment, so I'm adding it as an answer. And that is: you cannot claim the property as a rental property under certain conditions.  This affects things like claiming mortgage interest (which you don't have), and depreciation in value (which a rental is allowed). See IRS topic 415 for details, but I've included an important excerpt below with emphasis added: If you rent a dwelling unit to others that you also use as a residence, limitations may apply to the rental expenses you can deduct. You're considered to use a dwelling unit as a residence if you use it for personal purposes during the tax year for more than the greater of:  ...   A day of personal use of a dwelling unit is any day that it's used by: Talk to a tax accountant to better understand the ramifications of this, but it's worth noting that you can't just rent it to her for a paltry sum and be able to take tax advantages from this arrangement. Ethically, you and your landlord should always report both income and expense as there technically exists a service and a rent. So it is subject to taxation. On the other hand, it can be considered an exchange of a simple favour and if it doesn't involve a money exchange or any profits (I am assuming that you are not selling what you or your landlord produce on the market) no value can be calculated thus no taxation can be applied. This changes though if a contract is involved, as a legal value can be estimated. Caution: These subjects can vary on an extreme level of specificity, of what can and cannot be claimed as income and expense, which can vary per country, state, province and even per judge, as well as the nature and sector of the work. Also, if you intend to formalize this relationship, the type of contract and reporting forms do vary per state as well. So it might be best to confirm it with a local legal advisor to avoid unfortunate surprises. Hmmm. I hadn't considered that energy usage would be considered confidential. How about asking a nearby neighbor to share their next bill. If it's higher or lower than yours, just scale the history up or down accordingly.  Other than that, the utility company might offer its own level billing plan where they handle the estimate and offer you the same payment each month. It is ordinary income to you. You should probably talk to a California licensed CRTP/EA/CPA, but I doubt they'll say anything different. You would probably ask them whether you can treat some of it as a refund of rent paid, but I personally wouldn't feel comfortable with that. This answer is assuming you're in the US, which apparently you're not. I doubt that the rules in the EU are significantly different, but I don't know for sure. In case of an IRS control, is it ok to say that I regularly connect   remotely to work from home although in the work contract it says I   must work at client's office? No. Are there any other ways I can prove that this deduction is valid? No. You can't prove something is valid when its not. You can only deduct home office expense if it is used exclusively for your business, and your bedroom obviously is not. GET A LAWYER. Doing business with relatives is business first, and some effort spent in setting things up and nailing down exactly what the financial relationships and obligations are beforehand can save a lot of agony and animosity later. Assuming it's a legal rental, you may be able to deduct business costs spent on maintaining the rental unit, but of course you will have to declare the rent as income. If it's just a bedroom suite, rather than a full legal apartment, I don't think you can claim it as rental. (Note that whether you decide to share cooking and such is a separate question; apartment in most areas requires its own kitchen and bathroom.) As Joe pointed out, the actual purchase also sounds like it's going to involve a large gift, which has its own tax implications. Either that, or they retain ownership of their share and you get to deal with that if you or they decide to sell.  Again: GET A LAWYER. And a tax accountant or tax lawyer to advise you on those implications. This is not someplace where the average wisdom of the Internet should be relied upon except for generalities; local laws and contract details matter.