Right now I have about 125k invested in vanguard with about 80k of that liquid (taxable mutual funds), and about 10k in a plain checking account. 

I had a taxable account, which I eventually just blew out on the secondary market to get the money back because the hassle was too high.I do still invest in a Roth IRA (takes out the hassle of taxes makes the returns manageable) and utilize it as the "bond component" in my Roth since bond prices have been in the toilet lately.

For a lender, the interest income is taxable, principle repayment has no tax consequences.

In other words, if the person was a relative instead of a parent, would the gift then be taxable?

When a tax-exempt entity engages in a trade or business on a regular or repeated basis, it is subjected to tax on Unrelated Business Taxable Income. 

The remaining gain above that is taxable regarldess of how the proceeds are utilized. 

The kicker with depreciation is that it turns into taxable income when you sell.

However, (a) I wouldn't make an investment decision based on any info provided by Zillow; (b) 2% rent ratios are hard to find in Fort Worth, unless perhaps in the ghetto; and (c) high CA income tax rates shouldn't matter much b/c depreciation should minimize taxable income.

If a short doesn't work for whatever reason, they're likely looking at a bankruptcy as the "least worst" option, particularly if the Feds don't extend the taxable income forgiveness on primaries.

Was there a taxable event during the transfer?