The seller's LLC pays capital gains tax and depreciation recapture, while the buyer's LLC uses the purchase price as the new cost basis.

Withoutknowing the details I can not suggest which would be right to add on.Several you should pay attention to are:- Ordinance & Law: Provides additional building coverage to deal with rebuilding costIncreases due to changes in Zoning or Building laws- Personal Injury Liability: Libel, defamation of character, wrongful imprisonment, etc.

After talking to another family member they said they would be willing to go in on the duplex and offered to pay the $40,000 down payment and help with any repairs but they want to be "partners" or "own" a percentage of the duplex.

Sellers are notorious for not communicating any changes in their unit counts to avoid paying taxes.  

@Shayan SameerThe non-paying tenant could impact your short-term cash flow, so consider the potential costs and timeline of eviction in your state.

She agreed to pay a $400/month pet fee on top of the $1,150 rent.

Is it better to sell, pay off mortgage and capital gains and take the cash to invest in another property or is it better to refi/ETO and take the cash to invest in another property?

Be patient, it's going to pay off. 

Speaking with the seller's agent, all the tenants are current on rents and pay rents on time.

Hope you didn't pay anything to an S8 "guru"!