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.
