"short sale may be able to exclude the canceled debt "....

NOW is the time to LIST your Short Sale Properties !!!!
Homeowners who have had mortgage debt forgiven after a foreclosure, modification, or short sale may be able to exclude the canceled debt from their taxable income if they meet specific criteria.

According to Gil Charney, principal analyst at The Tax Institute at H&R Block, the specific criteria to have forgiven debt excluded are the debt must have been incurred to buy, build or substantially improve the residence, called “acquisition debt, and the property must be the taxpayer’s primary residence.
Also, the exclusion applies only to acquisition debt up to $2 million, or $1 million for married taxpayers filing separately, and cancelled mortgage debt not used to buy, build, or improve a principal residence is not eligible for the exclusion, but may be excludable under a different provision, such as bankruptcy or insolvency, Charney added.
Under the Mortgage Debt Relief Act of 2007, the provision is for debt forgiven between 2007 and 2012.
For those considering a short sale,  waiting to do a short sale after December 31, 2012 may lead to tax penalties that could have been avoided for the homeowner unless the bill gets extended.

According to data from RealtyTrac, since 2007, about 1.8 million U.S. homeowners have sold via pre-foreclosure sale, and most of those were short sales.
In addition, for the year 2011, there were 830,000 completed foreclosures, and from the start of the financial crises in September 2008, there have been about 3.3 million completed foreclosures, according to reports from CoreLogic. Also, 1.4 million homes with a mortgage were placed into foreclosure inventory for the year 2011.
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(Source: H&R Block)