Renting out parents home when they are in care covered by Medicaid. What are the legal/financial pitfalls if any?

And the legal liability if nephew is injured on rental property. Need for eviction through courts if he quits paying rent or damages property or moves in friends. My sister finally sold moms house that our nephew was renting after he moved out damaging property, not paying rent and housing buddies that paid him but not my sister. Just very tricky

If you rent to a related party ie nephew you better make sure that nephew is paying rent that is comparable to non-related party. If less you will have issue of gifting to nephew. The IRS will be looking for a tax return with rental income for your parents which will incur taxes. When renting it is customary to take depreciation against rental income which will muddle up MERP recovery settling out value of house. You lose lock on property taxes in some places since it's not owner occupied any more. Plus difference in insurance for a rental property that will also need nephew to have renters insurance. And if state income tax is assessed it may cause other problems.