Legal Question in Tax Law in Massachusetts

The issues are a little too complex to be adequately answered in a forum like this.

The tax implications depend largely on the cost and the terms of the construction of the in-law suite.

If the simply do the addition and there are no conditions, such as they get to live there rent free but pay their own utilities for life or a period of years, it is a gift to you and assuming the gift is more than the annual gift of exclusion for each of them to each of you, then they have to file a federal gift tax return for any additional amount given to you. The amount (assuming it is less than a $1 Million and your parents have not used up their gift tax credit) would be able to use their gift tax credit and not pay any gift taxes.

I would suggest you meet with an attorney so you can do this in such a manner as to protect your interests as well as the parents and with least impact on your parents medicare or medicaid benefits in the future.

Also, you need to decide what will you do if your parents become too much of a burden or problem and do not wish to vacate. There is much more to this than simply tax implications.

Please feel free to contact me if you have more questions.