As long as the LLC is a single member LLC and a disregarded entity, it would be treated as if he was the real owner of the underlying real property. 

The parent will stay living at the property but POA will hopefully be used to transfer ownership to their adult child Will this be treated as a purchase by the IRS and is it a straight forward transaction?  

things to consider,, check with the city and zoning and check is ok to treat it as a short term rental . 

If I have that documentation, they can treat my parent''s house as a rental property.I just need to know what kind of agreement I have with my parents so I can use the correct template and get the documentation together.My parents are in the process of refinancing their mortgage and removing my name completely so I don't run into this problem in the future but that will take some time and I need this done ASAP because I have just gone into contract.

LLC treated as partnership2.

I got sent down this rabbit hole, interestingly, by a BP blog post:http://biggerpockets.com/blog/...Wherein the author stated one of the advantages of a tax strategist was to plan for "how to treat cash flow as return of capital rather than distributions of profit"It seems I ran in the wrong direction with that. 

Get free advice but make sure you treat them well. 

One day we'll cash it all in but we don't treat it as a monthly cash flow asset.  

After losing track of how many would-be renters asked to waive the security deposit or the first month's rent, I began to understand that business must be treated as business. 

@Michael NotoThe seller said they don't have proof of it but they did treat the property.