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How should I handle these renters for tax year 2002?

You report the rent income and the related expenses on schedule E. For tax purposes, don't worry about the rent you didn't receive. Just report the rent you actually collected.

Also, once my folks move in June 2003, how should I handle it then?

If they aren't paying you rent, you can deduct the mortgage interest and property taxes on schedule A just like for your principal residence. It would be considered a second residence.

If they do pay a FMV rent, then its the same as above. Show the income and expenses on schedule E.

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