In 2013 my family lived in my home. I was living in a different home. I am very ignorant about taxes and did not sign a lease with them or collect rent from them by check or any way that can be proved by a paper trail (not to be evasive, but just because the way we handled it was foolish). I rented to them at the cost of my mortgage which is several hundred below the fair rental value for the property. I am not trying to claim any deductions on my taxes for anything related to the property and so I am unsure how to handle this. Can I treat everything like a gift--as though I gifted them living in the home and they gifted cash to me? The total amount exchanged is under 10,000. Do I need to claim the amount of cash I think I received as rental income even if I will not be able to prove it in the future? And then deduct expenses like interest paid?

Legally you do, but I can assure you there are any number of sub-letted rooms that never show up on taxes.

The way you are thinking about doing this IS legal. You are basically letting them use your home in exchange for them paying the mortgage for you. As long as you do not claim the mortgage interest and real estate taxes (since you did not pay it), you will be fine.

However, you CAN also claim the rent on Schedule E, then be able to the mortgage interest and real estate taxes on the Schedule E as well. A rental price that is a few hundred dollars below the market rate (the only real problem with this situation) will probably NOT be noticed by the IRS. You will show a paper loss because you can also deduct the DEPRECIATION on the house, and that can be a big help on your return if you have other sources of income.

Note that MOST rentals show such a paper loss.

If you need professional help with this, email me at the email address in my profile.