Capital gains exclusion for primary lost when transferring to LLC?

[Kristie Buddenbaum]

My husband and I own two SFH in western Kentucky; one is a rental that we've been working on, the other is our primary. We're planning on moving out of state by the end of the year. We're looking at setting up a KY LLC that will hold these properties and rent them out through a local property manager.

We'd like to take advantage of Sec 121, capital gains exclusion and plan on selling what is our primary in two years (to get in under the five years qualification). We would like to transfer both properties to an LLC for an extra layer of protection but don't want to nullify/disqualify for the cap gains exclusion for the primary in doing so. It reads like you can transfer to a SMLLC, but we're both on the title. For it to be "like kind" wouldn't it need to be a multi-member LLC? But then it wouldn't be a disregarded entity… Adding to my confusion is Kentucky’s Community Property Trust Act of 2020.

Tried calling the IRS for clarification and talked with several accountants who said they didn't know. At this point it seems like the path of least resistance would be to leave it in our names and skip the LLC altogether. (If we go this route, would still likely set up a multi-member LLC for management, just not holding of the properties). Any insight would be greatly appreciated!