<prompt> Human: To preface this, we are first time homebuyers that will be renting to a close friend. I doubt shed take any legal action against us but just to be safe, what steps do I need to take? On another note, are there any specific steps needed when I report rental income on my taxes?  <response>: Create a lease and handle it exactly like a rental property. rLandlord Perform a background check, credit check. Take a security deposit. Track all expenses related to the friend renting from you and deduct it from your taxes. Report the rental income when you file your taxes. Count the portion of depreciation on your home as an expense, etc. 