If it goes further you've got to decide to weigh the cost of defense and the potential tax. 

However most businesses (even the self employed) like to pay as little tax as possible so this means showing little income. 

Obviously, we want to minimize the Capital Gains tax as much as possible, but since we don't plan on selling the land, maybe it won't actually apply to our situation.

There are tax advantages to having an S-corp due to the dividends and disadvantages due to self employ tax.

It actually helps  a lot in terms of capital gain tax as well.

Determination of whether an individual is a real estate dealer is related to SE tax.Rental activities are not subject to SE tax unless the following situation applies.Income from rental of real estate is excluded from the definition of net earnings from self-employment and is therefore not subject to SE tax[Reg. 1.1402(a)-4] Exception: An individual who is a real estate dealer is subject to SE tax.

Any attempt to form an LLC and manage the transfers like that will probably result in the IRS claiming you are using a "step transaction" - a series of legal steps by themselves used to avoid compliance with IRS law in an attempt to avoid tax. 

@Ann Wing make sure to understand the HOA as others have said but also the Special Use Tax as some areas around Denver have some sneaky hidden fees that may seem minor but add up.

It is certainly not the kind of savings that induces once to "create" self-employment just to avoid that tax as is so often recommended here on BP.

In Washington, renting rooms can be called a boarding house and as such requires collecting sales tax, a license and many more hassles.