Questions About A Two Family House- Would you list a family member as a renter or a dependent? (pay, rent)

[ocnymonty]

Last year my father-in-law passed away leaving his wife who has medical issues in our (my wife and I) care. She has MS and requires assisted care. My wife and I were fortunate enough to find a two family house for sale within a mile where she lived. The house is a single family house that at one time had a legal apartment attached. It still has it's own utilities and heat and it is still listed as a legal two family despite the previous owner knocking down a wall and creating a walkthroughh between both spaces. We closed on the house in April of 2008 and moved MIL into her apartment space in July. We're wondering how to approach filing our taxes to create the best possible deductions and benefits.

My MIL collects SS# and has retirement income. Insurance and/or medicare covers her medical expenses however she does pay for out of pocket expenses (like home health care) that neither covers. She pays us $500 per month and we provide heat. All other utilities are in her name.

I am wondering the best way to maximize our benefits without hurting her deductions or tax return eligibility. We plan to consult an accountant first, I just wanted to get an idea of what questions to ask before we meet. There are obvious advantages to listing her as a dependent, however there are also advantages in considering her a tennant. Anyone have experiencing with this?

[bande1102]

She'd need to meet the requirements of a dependent--one of which is that you provider over half of her care. If she's paying you rent and other costs it doesn't sound like she meets the requirements of a dependent.