I am brainstorming the situation with other investors to see if there is any substance to this lead.

Humanitarian work helping people struggling with mental illness and substance abuse is close to my heart, and if I could make it work as a solid investment as well, I may have to pursue it. 

I'm not sure of the answer, but it seems to me that the IRS would challenge this on economic substance.

You aren't doing these things solely to drive traffic to your site - you're doing it to build relationships, because these are what can (and will) build a dedicated following over time.There are a lot of people making "noise" on the internet by throwing links all over the place (that nobody is going to click on) and making thoughtless and irrelevant comments. ...but people take notice of those who are actually bringing some substance to the table.

The truth is that substance rules over form.

Substance over form. 

We look to the economic substance of the transaction, and in the case of rental properties, the income/loss will be passive in nature.UNLESS: the shareholder of the entity qualifies as a real estate professional for tax purposes.

However, that technique raises several red flags in my mind:If the LLC exists solely to hold the primary residence, and has no real business purpose, I'm concerned that the IRS would rule that it's a "sham", and any tax deductions would be disallowed.Most likely due to violating the Economic Substance and Substance Over Form doctrines.If the LLC has some additional (real) business purpose (e.g. additional rental properties, or a commercial venture...such as selling office supplies), then the personal residence is in jeopardy in the case of a lawsuit brought against the LLC resulting from any investment or business property held within the LLC (e.g. slip and fall at a rental property).Even in that case, I'm assuming the residence would still be classified as personal property (even if held within the "business" LLC), so that any expenses paid (maintenance, repairs, etc) would not be deductible.Not to mention that mixing personal and business assets within the LLC creates additional risk for "piercing the veil" (alter ego) for any potential judgments.If they decided to proceed and ignore the above issues associated with using an LLC, there are additional issues:It's more difficult to get financing for personal property held in an LLC, and any financing would be at a higher interest rate.It's more difficult to get hazard insurance.They would need to pay the LLC (themselves) fair market rent, as tenants of the residence.They (as LLC members) would need to pay income & FICA taxes on the income (rent) received from themselves as tenants (resulting in double taxation of that money).They might lose their capital gains exclusion:If they keep it as a Single Member LLC (since they're husband & wife in a community property state), they could probably keep the capital gains exclusion, since the IRS typically considers that a "disregarded entity" (as long as the LLC has not elected to be treated as a corporation for tax purposes).

These kinds of the transaction go against Economic Substance Doctrine.A transaction has economic substance if: (1) the transaction changes in a meaningful way (apart from Federal income tax effects) the taxpayer’s economic position; and (2) the taxpayer has a substantial purpose (apart from Federal income tax effects) for entering into such transaction.There is no change in your economic position by transferring your primary residence into a LLC, You do not have a substantial purpose for entering into such transaction other than to simply avoid paying federal income taxes.Hope that helps. 

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