You are correct that the CA SMLLC (if disregarded for tax purposes) will be treated as the owner on the home for the purpose of the exclusion under IRC Sec 121 (See Reg 1.121-1(c)(3)).

A single member LLC is a "disregarded entity" for tax purposes (meaning you do not need a Form 1065 or schedule K-1 for your tax returns) but you will need an operating agreement, to keep annual minutes and to setup separate bank accounts in the LLC's name.

The best way is for both partners to contribute labor equally and then you disregard the labor.

Try explaining that your partnership LLC is now a disregarded entity because this year it is a single member entity with a new entity as owner.  

@Aaron Klatt Single member LLCs are disregarded entities for federal purposes and do not require a separate federal return. 

To break even you would need a lower Purchase price or a loan with 75% LTV.I assume you are disregarding the Cash Flow issue for the moment.Does this answer your question?

If they refused, I would have disregarded their notice and went along with business as usual. 

Personally, I prefer to put my dollars in other markets, but if the right opportunity and circumstance came along then I certainly wouldn't disregard it.

This type of LLC by default is considered a disregarded entity by the Federal IRS. 

Nicest rehab in a class B- neighbood with an alcove 48" walk in shower (disregard the measurement on the photo below) on the 3rd floor unit in Chicago (proper).1) Would you install a glass door or curtain rod?