Mtg. Forgiveness Debt Relief Act
The question "Will I have to pay taxes on my short sale deficiency?" is very common now a days. Many advise to speak with a CPA to approach insolvency, but there is a more simplified approach since the Gov. has given a window for any of these loans which are discharged between '06 & '10. I just found out about this today, and I'm surprised more of us don't know about it. Of course, it is still best to advise your client to speak with their CPA/Tax Attorney for the best way to approach this act!
Check it out!! http://www.irs.gov/pub/irs-pdf/f982.pdf