I'm assuming there is no estate tax situation here, there aren't for most.The personal residence is exempt from qualifications, a transfer of exempt assets is not an issue.

Some ideas that come to mind:-A carefully crafted operating agreement that calls for the active spouse to be the sole managing member and the inactive spouse to be nothing more than an equity member only can add an argument for a passive LLC member, and thus, some wiggle room for exemption from employment tax.

States though seem to be recognizing more and more the structure of the 1031 process and offer exemptions for transfers just like this in a reverse exchange.  

@Evan BenderBeing that the property is a HUD REO and they are exempt from any disclosures,  I hae never heard of HUD signing one

There is also an exemption certificate that can be filed that offers a couple of options.

No need to reinvest all of your profit in the next primary residence to exempt the capital gain.

So even if you are exempt from CG tax because you do not go above the 2nd tax bracket, dep.recapture is always considered ordinary income. 

Buyer didn't have issue with it,  we will see if the bank does,y realtor isn't expecting a problem with it.Residential oil tanks are exempt from the federal regulations unless you have a spill. 

In other words are you considered exempt from the requirements of a licensee. 

This would tie the cash flow directly to rental income instead of issued dividends.Let's assume for the moment that interest in the previous fictional example is not considered a security or that the business could meet one of the common exemptions of the SEC's Regulation D (504, 505, 506).