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I'm not sure if I'm even posting this to the right board, so please let me know. My in-laws would like to move closer to me in Kansas. They are retired and my wife is their only child.

You might suggest to them that they come, rent a furnished home, and spend 6 months. I've seen too many miserable old people who gave up their lives to move closer to their children.

Does anyone here rent a house to their in-laws or parents? We've tossed around the idea of having me buy the house, and they would pay the "rent" which would cover the house payment. I'm guessing that this payment would be considered income, but I would at least be able to get a little break with a tax deduction for mortgage interest.

Watch out when you start putting perfectly understandable words in quotes. It can easily lead to someone trying to get away with something. They wouldn't be "renting," they'd be renting.

See IRS Publication 527 for detail about the tax treatment of rental income and expenses. Any arrangement is doable, depending on the needs and desires of the parties.

They have enough to pay cash for a house here, so we're wondering if this route is even feasible. One thing they are worried about is that if one of them were ever to go on "the system" (i.e. Medicaid), than the state could put a lien on the house. If one is worried that they may have to go on aid, is it better to be an owner or renter?

This is an elder law, not a tax law, question, and you really need to discuss this with an estate planning attorney. Kansas has an anit-impoverishment provision which allows the spouse not needing Medicaid to keep the home and some assets while the other spouse goes on Medicaid. The state recovers from the second spouse's estate. It wouldn't matter whether they were renting or owned.

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