Infinite’s answer is correct. You’ll get hit with a 1099.

However, you also asked about a short sale. In some cases–it depends on the lender–the lender is requiring that the owner of an investment property put up some of his own money to facilitate the short sale. Sometimes this is done with cash, sometimes with a note. For example, if someone owes $500,000 on a property, attempts a short sale at $400,000, sometimes the lender will approve it only if the borrower puts up $10,000 (for instance) of his own money.

I do not think you will be taxed for the diference. When a forclosure property is sold a your local courthouse. It is sold by the lender with a substitute trustees deed. That means that it is not you that is selling it it is the lender. The lender would be responsible for any tax liabilities as far as a shortage or overage on the sell of the property. The onlly thing you will suffer is a big blemish on your credit.

it is similar, except for the biggie. when the bank sells the property as at a shortage, you will get hit with a 1099 for the shortfall. this will be considered income to you. as the property was a non owner occupied investment property, you will not be protected from the 1099.