Accordingly, the Smiths’ return is 11.28%, which is comprised of their 8.85% taxable equivalent yield plus the 2.43% yield from avoided taxes.

Does this create a taxable event?

It is important to keep a separate bank account for the LLC for legal purposes, but for tax purposes , taking money out is just considered a distribution to the shareholder (you).I agree with Natalie- if you don't need the money, I just wouldn't charge your rental property a management fee.If you do need the money, as long as your distribution does not decrease your basis below 0, then it shouldn't be taxable.

I believe that while it's no taxable event to transfer your title into your Entity, transferring your property title out of your entity back to you may cause you to get taxed for the balance of the loan or at least the principle part. 

If I am reading it correctly this would reduce taxable income significantly but still not to the effect of a step up basis in an inheritance scenario.     

Any amounts would be taxable distributions and likely subject to penalty.You can use your IRA for investing but the funds have to remain retirement funds and the normal strategies of growing the investments are limited a bit as explained above.You haven't asked this yet but I feel you may - you can't borrow from your IRA and generally, you can't invest with your IRA for the purchase of an investment property.

The IRS will interpret the difference as taxable gain.

We use those "losses" to help reduce our taxable income as rental income is considered passive income. 

You'll only get to prorate the the gain between the time you lived in it (qualified use and tax free) and the time it was investment (non-qualified use and taxable).2.

The client is 59.5, but it seems once the property goes in, the only way it's coming back out is in the form of a taxable distribution.