Hi Steve! It seems more like a question for your tax professional and financial adviser. It sounds like you have a really good grasp of the situation already and just need to make a decision. Maybe when you consult with your financial adviser he/she could help you evaluate whether it would be more beneficial to keep the condo now or take the proceeds and place it into other investments.
The first thing you need to do is contact your lender. If you are qualified to buy a second home they may not look favorably on a short sale of your townhouse. Some homeowners who attempt a short sale find out that because it was an investment property or because they bought a another home that their lender won't let them complete a short sale without triggering either an unsecured loan for repayment or tax liability for tthe difference between the short sale amount and the market value.
Short sales require that you provide evidence a financial hardship including tax returns, investment accounts, recent pay stubs, etc. They won't even consider a short sale unless you are behind in your payments which of course will lower your credit score making it harder for you to get the loan for your new home. Call your first lender before you commit to a new home.... more