You will be responsible for factoring in the $12,500 penalty.The withholding from your $90,000 earning W-2 may be higher than that penalty resulting in a refund.

If I end up issuing this payment, do I also get the exiting tenant to fill out a w9 for their income or do we report this distribution as short term capital gains or do we withhold taxes.  

Many apartment managers are claiming they don't get paid for overtime, don't get Wage Earning Statements and they claim they are employees and not independent contractors meaning they sue you for filing them as Exempt from paying taxes when you should be withholding taxes from their earning, matching their payroll taxes and paying into social security, medicare, etc..

Account ClosedLook up form 593 - there may be some scenarios where you are exempt from having to withhold taxes upon sale.However, you may still have to pay the tax when you file your return.

In many states, even more landlord friendly states, you must give written notice of the amount you're withholding from the security deposit, and why it is being withheld.

Make sure you take plenty of photos of every bit of damage if you decide to withhold anything from her security deposit aside from unpaid rent.

If more, withhold the entire thing.

I don't have any experience with holding the commercial property in a speculative manner.

I have a little experience in NC with Holds.

You will want to make sure if they are required that you have them either directly or through your trades as backfitting after getting red tagged will again, hit you with holding costs.Hope this gives you a few things to consider