My husband and I have an LLC that recently bought a fixer-upper house in another city and now rents it to our daughter (not our dependent). We don't charge her market rental rates, partly because the house was in bad shape and she is providing the labor for making improvements (painting, fixing up the yard, etc.). The rental rates in her city are way high, so even as the condition of the house improves we don't plan to ever charge her market rates.

The LLC (that would be us) has chosen to charge low rent. However, a friend thought perhaps the IRS would consider this reduction to be "income" to her. I don't quite see how that could be since there wasn't already a set rental rate for the house and we're not giving her money to pay part of her rent to someone else. If anything, I think it might be considered a "gift" but the total amount would be less than the Annual Exclusion.

Any ideas? Thanks.