One way to get the IRS to subsidize the cost of supporting an elderly parent is for the children to buy the elderly parent’s retirement home or condominium and rent it back to the elderly parent. At the very least, the children will get tax deductions for mortgage interest and property taxes. These deductions will produce a greater tax benefit to high-income children than they would to a low-bracket retired parent. And if the children charge the parent fair market rent, they will also be able to take depreciation deductions on the condo.
The child reduced their taxable income by $5,000 by renting a condominium to their retired parents. Since the child’s income was taxed at the 30% tax bracket, the income reduction may decrease their income taxes by $1,500 ($5,000 x 30%).
If you are in a combined (federal, self-employment, and state) tax bracket of 30%, you could reduce your taxes up to $300 for every $1,000 of income reduction by having a parent rent a condominium their children.