Your name saw this post on The ActiveRain Real Estate Network and thought it might be of interest to you. Please see the link below to review the post.

Florida Short Sales: Tax Consequences and Insolvency
I am one of the leading short sale agents in my area and I get asked the following question quite often:
If I short sale my home will I have to pay taxes on the debt forgiven?
Now I am not an accountant and the first thing I tell people is that they need to speak with their accountant.  I will also show them where to find the IRS guidelines if they want to do their own research.
http://www.irs.gov/individuals/article/0,,id=179414,00.html
http://www.irs.gov/pub/irs-pdf/p4681.pdf
 
The first link discusses The Mortgage Forgiveness Debt Relief Act and Debt Cancellation.  It explains how you qualify to not pay income tax if you short sale your primary residence.
Pages 4-7 on the 2nd link are particularly helpful.  Here you can find out if qualify to be exempt from paying income taxes on a short sale through insolvency.  Very few people know that you may not have to pay income tax on debt forgiven in a short sale if you are insolvent at the time of the debt cancellation.  Page 6 of the 2nd link is the insolency worksheet that needs to be completed to see if you qualify.  I have found that it is much easier to qualify than ... more

__________________________________________________
Are you on The Rain? Grow Your Network!