My friend has been renting a place and not claiming the rent or the expenses on her tax return! Is this illegal?

You have to claim all of your income. Yes, rental income is taxable. Yes, it is illegal to not report it. You (or your friend) should go to a tax attoney to discuss this.

I do agree with the other attorney. But also, where your friend has unreported rental income, there might be little immediate tax consequence, if the expenses equal the income. At least your friend minimizes that immediate tax consequence by reporting all, including the expenses. The later discussion about depreciation, capital gains, carryover losses, etc is another, more elaborate conversation.

I agree with the other attorneys. The owner is also entitled to depreciation expenses. A 'sale of business assets' deduction would also be a benefit when sold , if there is a loss. Best to claim the income and expenses on a Sch E.

All rental income must be declared despite the fact that some people do not do so. They are supposed to declare it. Christopher Larson Insight Law