So, some minor separation of joints is normal.

We're both Hawaii residents and file jointly (a common law state). 

It was a joint venture with a local contractor/investor. 

This could be through a joint venture or forming a small investment group.

Some common problems are oil canning (sheets buckling) due to improper expansion joints.

If they have a profit selling the house the first $250k of profit is excluded from federal tax for a single person or $500k for a married couple filing jointly because it was their primary residence.

If the net number is over the $500k that it sounds like they will be exempt from if they qualify for a section 121 exemption (will need to have lived in the property as their primary at least 2 of the last five years, can exclude up to $250,000 filing as an individual, $500k married couple filing jointly, and meet all the other use requirements), then the only option I can think of to avoid those capital gains taxes is to keep the property as a rental for a few years then sell it and 1031 into another property.

I am currently on W2, and my wife and I file taxes jointly.

From the Ground Partner's point of view, we are more of a partner in the deal and therefore it is more akin to a joint ventureship. 

Married Couples Filing Jointly: Similarly, for those married and filing jointly, the range has now been expanded to between $230,000 and $240,000, a notable rise from the 2023 range of $218,000 to $228,000.