As real estate professionals we are aware of rules and laws affecting short sales.  A very good place to search for information is on the Gov. website.  Just Google search HR 3648: The Mortgage Forgiveness Debt Relief Act which was enacted in 2007 and extended through the Emergency Economic Stabilization Act of 2008 to eliminate the tax liability for many homeowners that go through a short sale. For all the updates go to www.HR3648.com and watch the video that explains how you can leverage everything.