I can only imagine this may have been cost prohibitive which is why the owner did the above.Any advice or suggestions appreciated.

And if you wanted to rent to her that's not prohibited. 

I can't find where they prohibit such construction. 

HOA may have codicils which prohibit renting and even if not now, can occur anytime/overnight in the future.

Do the boards generally have rules prohibiting letting other users use your login/password?

This is likely cost prohibitive for a single property but can be inexpensive when insuring 5+ homes together. 

There should be no capital gains for the LLC because the buy and sell price are the same, unless that is somehow prohibited.

The LLC operating agreement must include references to the retirement plan rules such as restrictions on doing business with prohibited parties, prohibited investments, and much more.You typically obtain this operating agreement from a company or attorney that specializes in forming special-purpose, retirement plan LLCs.

Most of them will prohibit resale of the property for some period of time.  

They do verify that it is not a prohibited transaction.