My sister and I took advantage of the Family Opportunity Mortgage program to buy our parents a home closer to us this year. My sister put 20% down and will be a “silent partner”. The title is in my wife and I’s name.

Is your sister's name on the mortgage? If not, then most likely she has no "skin in the game" (for lack of a more accurate term.) That means she gets no claim for anything concerning the property on her tax return.

My parents will be paying us rent,

I'm not well versed on the Family Opportunity Mortgage Program myself. But I question the legality (as part of the program qualification requirements) of charging/collecting rent. I would highly suggest you seek legal advice on that front.

but well below FMV.

Assuming no legal issues as mentioned above, that just means when you report the income/expenses on SCH E, once your qualified rental expenses gets your taxable rental income to zero, that's it. You are not allowed to carry over excess losses. You just "lose" those forever.

Since this is an “owner-occupied” second home,

How do you figure it's owner occupied? If only you and your spouse are on the mortgage, yet your parent's live there and call it their primary residence, then it's not owner occupied. A homeowner can only have one primary residence at a time.

I believe we can claim mortgage interest and property tax as deductions on our taxes

You most certainly can. But the question is where on your taxes would be correct and legal? If it's legal for you to rent the property out under the Family Opportunity Mortgage Program, then it's claimed on SCH E.

but do we have to claim the “rent” as income?

If you're charging rent, then yes, most certainly.

Is there anything I’m not aware of and should take into consideration when it comes time for taxes?

Absolutely yes.... and not just for the tax front either. You need to seek advice from someone who is well versed in the Family Mortgage Program and confirm that what you are doing (or what you want to do) is in fact legal and will not disqualify you from the mortgage program, possibly causing legal issues down the road for all we know.  I for one question the legality per the terms of the program, of charging rent. Though I see nothing wrong with the actual occupants of the property (the parents) making the mortgage payments, or contributing to the mortgage payments.

Since your parents claim the home as their primary residence, I would expect them to be able to prove a "vested interest" in the property, thus allowing them to claim their share of the interest on any mortgage payments  and property tax payments they contribute to, even though they themselves may not have a legal obligation to pay the mortgage or property taxes.

@Carl 

Thank you for your response.  To clarify your question/concern about the "rent" that we are charging them.  Neither my wife and I nor my parents are able to pay the full mortgage so my parents are paying what they are able and my wife and I are making up the difference to pay the mortgage. So not rent, per see, just help with the mortgage.

Per the terms of the Family Opportunity Mortgage, it's an "owner-occupied" second home.  This type of mortgage is for purchasing homes for elderly parents, or kids going off to college, the typical distance requirement for a second home is waived and it isn't considered an investment property due to the nature of the living situation.

Does this adjust your understanding of our situation? I know we are not the only people to take out this Fannie Mae loan, so I'm hoping to get some others advice as well.  Thanks!

Does this adjust your understanding of our situation?

Quite a bit. If anyone else reading this thread is aware of any changes to federal tax laws that would make my response in this post wrong, then by all means please jump in here and point it out. All I can find in the federal tax code simply describes the benefits available to property owners and defers to state and local laws that define legal ownership of property.

Per the terms of the Family Opportunity Mortgage, it's an "owner-occupied" second home.

The terms of the mortgage agreement do not change federal tax laws. While the above may be true for your mortgage agreement, when it comes to taxes, per the laws I am aware of, you have a second home and the IRS rules clarify that there's no way they would consider the property owner occupied.

Neither my wife and I nor my parents are able to pay the full mortgage so my parents are paying what they are able and my wife and I are making up the difference to pay the mortgage. So not rent, per see, just help with the mortgage.

I agree it's not rent. Therefore there's no need to complete or file a SCH E at all. Since the property is your parent's primary residence, and using the mortgage agreement rules I see no problem with your parent's proving a "vested interest" in the property should the IRS question things.

and it isn't considered an investment property due to the nature of the living situation.

There is a difference between investment real estate and a 2nd home. So if it's not investment property (and it's not) then it's a 2nd home.

However, your parent's do without question have a vested interest in the property, even though their name is not on the deed. Therefore, your parent's should claim that percentage of the mortgage payments/interest they actually make, and you should claim the percentage of the mortgage payments/interest that you pay. To help support this position, the parents should make their check payable to the lender, and you should make your check payable to the lender. Otherwise, using you as a "pass through" gives the appearance and strong impression you are renting the property to your parents.