Please cite the law which outlines the income tax ramifications of a short sale of real property.

The Mortgage Forgiveness Debt Relief Act and Debt Cancellation offers relief from tax for debt forgiveness on a borrower's primary residence.  This legislation was extended to apply to transactions closed by December 31, 2013. For more in depth accounting analysis, I recommend that you discuss the specific tax ramifications of your short sale with a tax accountant. The foregoing is specific to the law and procedure in Florida.  This response does not constitute legal advice as the facts presented are limited and unstated facts will likely impact your particular situation. This response is intended for general education only and does not create an attorney-client relationship. Please schedule a consultation with a local attorney for more specific and detailed answers to your legal issues.