I currently rent my house to a friend well below market value. I lose about $800 per month on the whole deal.

I read this on another site, and would like your input:
"The tax treatment of rental property also used by the owners for personal purposes depends on whether they use it as a residence. The test for residential use is whether the owners use the property for personal purposes for more than 14 days a year or 10 percent of the number of days the unit is rented at a fair rental price, whichever is greater. Personal use also includes all rentals below market value, and rentals to family members at market value unless the renters use the property as their principal residence."

From what I read in the bolded section: Since I am operating this at a loss, it is counted as "personal use" - which means I may count it as a second home, and write off the interest?

Also - as I reread my bolded section . . . does the "unless the renters use the property as their principal residence." apply to the "At market value" familiy members, or both rental situations? . . . it's a very poorly worded sentence.

Please advise.

Thanks!