You won't pay capital gains taxes.
However, you will pay taxes on earned ordinary income and subject to self-employment tax.
The net profit of the partnership is the "pay" to the partners for their work.
You are in the business of dealing real estate with the remodeling thrown in. This is true when done in the LLC and filing Form 1065
See this link for general information on small business
https://www.irs.gov/publications/p334/index.html
I have copied and pasted some information from various web pages that should help
Individuals who actively purchase and remodel real estate for profit on
a continuing basis. They are classified by the IRS as dealers rather
than investors. For these people, the real estate is treated as
inventory, rather than capital assets, and the profits on the sale of
those properties are treated as ordinary income, subject to the self-employment tax.
Many expenses must be capitalized and allocated into each project, and then deducted when that project is sold.
- The cost of the home itself
- Direct materials
- Direct labor
- Utilities
- Rent
- Indirect labor
- Equipment depreciation
- Insurance
- Production period interest
- Real estate taxes allocable to each project
https://taxmap.ntis.gov/taxmap/ts0/publication3780tax_p_2e56b2c1.htm
**Disclaimer: Effort has been made to offer correct information; but due to the discussion forum limitations, the poster disclaims any legal responsibility for the accuracy of the poster's response**
