I doubt if you'll have any issue with your hold period since it is all about your intent anyway.

I hope this is a smooth process and I can remove them without any issues.

I'm looking at small multifamiles and won't have an issue with capital thankfully.I am in Arkansas and looking to stay local-ish initially.

What issues would there be if I put MY NC house in the LLC that has his name and my name on it?

I think that's a great approach I have a lot of clients who self manage have no issues at all.  

Since you’re considering converting the upper unit into a short-term rental, you may also want to implement strict rules around smoking or strong odors in your house rules to avoid future issues.

Are you aware of some actual legal authority that validates the IRS opinion on this issue?

Is there any issues with doing this on investment properties that people have had in the past? 

Leverage will not change the effort or risk in the areas OP identified.  

The only issue appears to be the missing breakers and it being turned off by the bank.