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I know that 'who' refers to people and 'that' refers to things. But what about when the thing IS people, such as a family? Would I say, "That's the family that is moving in next door soon.", or "That's (they're?) the family who is (are?) moving in next door soon."?

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You can substitute "that" for "who" in relative clauses when the clause is identifying. If the clause is non-identifying, then "that" is not permissible.

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