I am filing a Form 1065. My LLC has four members and we buy, remodel and sell residential homes. We do all the work ourselves, and I am wondering how to report our income when we sell the house since we don't pay ourselves for the work we do. Will I have to pay capital gains even though we did the sweat equity?
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
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.