Based on the way I interpret you post, I see several problems already, and some of what I see involves more than just the tax side of things. Hopefully, you've not committed to anything yet and have instead decided it's time to educate your self "before" it's to late. For starters:
I am in the process of purchasing a home for a flip....To qualify for the mortgage, I need to have a co-signer. This person would be on title to the home also.
So in reality from a legal standpoint, "I" am not buying anything. Instead "WE" are buying a house to flip.
I am expecting to make enough that I will owe capital gains tax.
Sorry, but that thinking is most likely wrong too. "WE" will owe capital gains tax.
What you are indicating/describing here is at the absolute minimum, a partnership. With such a structure each member of a partnership owns an equal share of the partnership, unless stated otherwise in a legally recognized and legally enforceable partnership agreement. It does not matter how much a partner may have contributed to the partnership either. So if your co-signer is not contributing a penny, they have a legal right and legal claim to their equal share of that arrangement unless clarified otherwise in writing. Of course, they also have an equal obligation to pay the debts of a partnership arrangement too.
Basically, the IRS considers what you call "house flipping" to be a business and the income is considered self-employment income. This is true even if only flipping one house. However, depending on how you set things up, the IRS "could" consider it an investment, and then if you make a profit you have taxable investment income. Likewise if you flip at a loss, then you would have an investment loss.
So my point here is that IT MATTERS how you set things up. Then added to that is how things are treated by your state, if your state taxes personal income. This can get very complicated, very fast. Then if not done right it can easily bankrupt you and you could lose everything, not to mention losing a friend that becomes your lifelong enemy when the mortgage lender and other vendors/contractors come after them for any monies due, because you don't have any money for them to get from you.
You need to seek out and pay for professional help in your local area. You will find it well worth the cost which is a pittance when compared to what you are at risk of losing if you don't do things right. Additionally, all costs incurred for professional help can be claimed as a business expense or investment expenses, if done right.
So you need to seek the services of a CPA or Tax Attorney that is well versed and preferably experienced with what you're getting started on here. Then you also need to talk with a business/investment lawyer to make sure you've got all the T's crossed and I's dotted on all fronts, and not just the tax front.
