<prompt> Human: My brother in law has a second property he rents out for just over the mortgage payment. Ive let him know that the whole rent amount would be classified as income, but its his perspective that since it cancels out he shouldnt bother reporting it at all.We always like to debate financial prowess when we get together, but in this case I know hes just plain wrong. However this got me thinking, unless he self reports theres really no way hell get caught unless theres an audit in his future. Right? Ive never seen anything that would trigger an alert on rental property income. Thoughts?  <response>: Ive let him know that the whole rent amount would be classified as income, but its his perspective that since it cancels out he shouldnt bother reporting it at all.If thats true, then after depreciation he will actually show a loss, and have LESS taxable income. Hes quite possibly paying MORE in taxes because hes trying to scam the tax man. This is how real estate moguls pay very little taxes.For the purposes of karmic hilarity, you should tell your brother in law to continue not filling out IRS Form Schedule E. Weve got a federal deficit, after all, and who better to chip in a little extra than those trying to illegally shirk their responsibilities? However this got me thinking, unless he self reports theres really no way hell get caught unless theres an audit in his future. Right? Ive never seen anything that would trigger an alert on rental property income.He might have problems qualifying for another mortgage, in the future. For properties that public records indicate youve owned long enough to appear on tax returns, we are going to be heavily biased towards trusting the tax returns over any form of Stated Income or what might appear in bank statements. 