'Buying' a house for mom
My mother recently lost her husband, and subsiquently had to file Chapter 7 and give up her house, and start life over at 52. I convinced her to move from an expensive area in rural IN to an apartment by me in small-town Texas. She is currently in the hospital due to the stress of this situation complicated by a lifelong chronic condition (or rather, the stress complicated her condition and brought on an attack. We thought she was going to die for a minute there) I am trying to make her life as stress free as possible. I'm keeping her dog because she can't have it in the apartment, but it doesn't get along with my dog real well and Mom wants to look at getting a house here after her 6-month lease is up. Rent here is very expensive but buying a house is relatively cheap (go figure). Most people that plan to live here for at least five years buy instead of rent. The mortgage broker said she can't work with Mom for a house for two to three years after the bankruptcy is final. She had excellent credit before all this madness, and is trying to rebuild it even now. In three years she will have good credit again, but I don't think I can keep her doggie that long, and she can't give up this little rescued pooch, it would brake her heart. The mortgage lady said she could work with my credit, and suggested I buy a house as an investment and "rent" it to my mother, and let her buy it from me in three years. I do not have a problem with this as long as the payments are low enough for my husband and I to afford if something happens to Mom and she can't pay anymore.
But my question is, how does this work from the taxes standpoint? Because we have minor children, we still get some of the money we pay in back at tax time. Would Mom's "rent" count as income and put us in a higher tax bracket even though it's not really our house?