"The only income would eventually be a function of selling the property."

So now you would be claiming this is Investment. And of course, they just forfeited their potential tax exclusion for the gain from appreciation and it turns into taxable income.

You never stated "family lake home or vacation home" as "family LLC" and you keep stating personal residence for 2 of the 4 members. You don't get to let your LLC treat your personal life costs as tax deductible. You don't get to pretend to be in business to write off expenses. If there is no activity to report, at least for Fed, there is nothing to report.

This whole things smells like fraud. Did you really want to be involved in this professionally?