This is a case where there are tax laws, and then there is common sense.

If I were preparing these client's returns, I would not be reporting any rental income received and would simply consider this property as a second home owned by the taxpayer.

If it weren't the daughter, and instead a non-relative renting the property, I would have a different response.  But this isn't really a rental situation as we classically understand it, and it is silly to parse the laws and text of the IRS code.

For all those who disagree:  if an adult child moves back into the family home and pays some rent because the parents don't want them there as freeloaders, are you going to generate a Schedule E to capture this "rental income"?