If you were to rent out rooms in your first home( and receiving a first time home buyers credit). Is it better to consider half the home as a rental and get rental related deductions(i.e home improvements and maintence). Or is it better to not declare the income from the rented rooms but then lose out on the rental related deductions?

If you rent individual rooms that are NOT separate from your house, your expenses (such as the pro-rated share of utilities and depreciation) will EXCEED the rental income from the room.

The IRS does NOT allow you to show a loss on such room rentals, so once you determine that you would show a loss, it is best to not even report the rental activity AT ALL on your tax return.