Mom and Dad own a property that they rent to their adult daughter for $1,000 a month.  This is well below fair marker value.  Daughter is living at this "rental property" 365 days of the year, and has paid Mom and Dad $12,000 of income.  

It is clear to me from reading IRS Pub 527, that this dwelling unit is considered to be the home of Mom and Dad, because it has sufficient days of personal use by their daughter.  

So, certainly this cannot be treated as typical/usual rental property, and the only expenses that can be claimed would be property taxes and mortgage interest on Schedule A, Itemized deductions.   However, I am finding conflicting information as to whether the $12,000 of rental income that daughter paid to Mom and Dad must be claimed as other income by Mom and Dad on their 1040. 

527 has wording as followings:  "Used as home but rented less than 15 days.  If you use a dwelling unit as a home and you rent it less than 15 days during the year, its primary function isn't considered to be rental and it shouldn't be reported on Schedule E.  You aren't required to report the rental income and rental expenses from this activity."

But also this wording:

"Used as home and rented 15 days or more.  If you use a dwelling unit as a home, and rent it for 15 days or more during the year, include all of your rental income in your income.  Becuase you used the dwelling unit for personal purposes, you must divide your expenses between rental use and personal use as described earlier."

I assume that the language here of renting 15 days or more (or less) is referring to renting at fair market value.  Proseries software Schedule E worksheet asks for "days rented at fair value" and Pub 527 worksheet asks did you rent the unit at a fair rental price for 15 days or more.    If my assumption is correct about this, then "renting" this property to the daughter for 365 days, but at less than fair rental value means Mom and Dad have rented the property at zero rental days at fair rental value.   And in that case the $12,000 of rental income daughter paid them does not have to be reported as other income or any kind of income on Form 1040.    Am I reading and understanding this correctly?