I guess one of the biggest lessons that I have learned in the real estate field is the usefulness of leverage as a potentially helpful, but also potentially harmful tool.

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).

However I do feel that being an agent makes me more susceptible to law suits due to certain agency laws and conflicts of interest.All in all I still support the idea that having my license does more good than harm.

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. 

@John SampsonI'll give you couple tips, but they can do more harm than good when you do not have tax background.

I mean, they're kids and I get that.... but this is nothing short of willful and intentional harm and negligence on the part of the tenant/family. 

.§11-4 The Property Manager shall abide by NARPM®’s bylaws and other policies and procedures of NARPM®, and shall seek to avoid doing harm to the organization.§11-5 The Property Manager shall ensure that all electronic communications and marketing he or she prepares is professional with respect given to the recipients.§11-6 The Property Manager shall act with integrity, good faith, and professionalism in connection with all NARPM® and NARPM® Chapter activities.Article 12: COMPLIANCE AND ENFORCEMENTThe Property Manager shall comply with this Code and shall participate in and/or cooperate with any investigation and/or hearing conducted by NARPM® pursuant to this Code.STANDARDS OF PROFESSIONALISM§12-1 The Property Manager shall review and shall take all necessary action to understand and to comply with this Code.§12-2 The Property Manager shall not interfere with any NARPM® action to investigate a violation of or to enforce this Code.§12-3 The Property Manager shall promptly supply any information requested by NARPM®during any investigation or enforcement action pursuant to this Code.§12-4 The Property Manager must take and pass an ethics course, which shall include discussion of this Code, every four years as a condition of continued professional membership.Antitrust ComplianceAs part of a settlement with the Federal Trade Commission (“FTC”), NARPM® agreed to change its Code of Ethics and will not adopt, encourage its members to follow, or enforce any Code of Ethics provision relating to solicitation of property management work that does not comply with the FTC Consent Order.

So this is deeper than a business deal this is a person out to do harm to a business.

Normally I do not allow tenants to do anything but after 13 years there may not be much harm.

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