However this appears to only apply to residential properties.  

The bathroom in the basement was already there and likely done with permit. according to the parcel municipal documents, it appears there. 

Your fact pattern appears very encouraging and positive.  

I think of Joe Asamoah with the Section 8 strategy deployed in Washington DC and keeping tenants for many years (even decades), but maximum reimbursement appears to be $3,740 for 4 bedrooms and market rate family tenants will likely turnover every year or two as they would likely be looking to own in the area.I think rent by the room (students or university professionals) would be the best way to cash flow the property while paying off the mortgage.

Unless you threw them out, it appears they repaid your kindness by moving and generating a turnover. 

If they told their cpa “we sold it to our LLC” that is different than “we transferred it to our LLC”We don’t know what they told their cpaIt appears their cpa considered it a sale for tax purposes and not a transfer and thus that is how they processed it.I am not a cpa but asked this question way back when at a time I considered putting property in a LLC.

It appears the IRS may withhold tax deferral if ownership changes immediately after the exchange.

Tim does a 2 hour call once a month and occasionally appears on the daily coaching calls.

Real estate generates a return through cash flow + appreciation.It appears that cash flow is negativeAppreciation appears to be 0% over 2-3 years based on zillowThe question is what you beleive the future will hold for cash-flow and appreciation.Cash-flow will likely continue to be negativeThe question is what do you think about the appreciation for the bay area.If the property continues to stay at $850,000, it will likely not be a good decision to hold on to the property.If you think the property can appreciate to $900,000, $950,000 over a few years, then it can potentially be a good reason to hold. 

@Bill RiderTalk to your cpa but the answer appears to be no based on what you provided