Although your property is an investment, I'm not sure how the IRS would view it.Best of luck to you!

The IRS sees debt forgiveness as a taxable event but if he was insolvent then there are forms for that his accountant could help with.With him not being an owner occupant it is doubtful he would get any money as assistance from the short sale. 

My primary focus at the moment is to build up my reserves, now that I'm debt free besides the properties, but if I find an opportunity to get one or more properties in the near future then I'd like to hop on it if the numbers make sense.

My hometown in New Jersey is experiencing a lot of shift in it's community, so I thought I'd hop at the opportunity and get licensed so I can sell in an area that I'm extremely familiar with.  

Don't forget your silent partner, the IRS, who loves to be at the closing table on these short-term profit deals as well.  

I would absolutely consult with a state Lawyer and CPA....But I can say this....if you're reporting anything that may require you to pay taxes the IRS is happy. 

When I apply for a new EIN at the IRS website, with the EIN of the SD 401k as the existing business, I get an error.I have faxed in an application - which should take no more than 4 business days to process and it has been 6 business days now.

I think it is form 8832 but you can easily confirm at www.irs.gov.This is the only opportunity to engage in a name change while doing an exchange because the taxpayer's name is changing but the EIN, better known as the number the IRS scrutinizes, is the same. 

If I sell this home today, can the purchase 2 years ago be recognized by the IRS as where the gains were reinvested making the gains tax sheltered?

I found out through my Attorney ( who did the Title Search for me ) , that $32,000 is owed to the IRS via the form of a Tax Lien .