Consulting an Accountant:
 

Before the Mortgage Forgiveness Debt Relief Act of 2007, a homeowner could be responsible for income tax on the amount forgiven by a lender as a result of a short sale of their primary residence.  However, after the passage of Debt Relief Act, a homeowner short selling their primary residence will not be subject be subject to income tax liability on a short sale if they are selling their : 

(1.) Principal Residence, and

(2) the Loan being "shorted" was used to acquire the principal residence.

It is important to verify with any potential client that their prospective short sale is on their primary residence and not an investment property. In any case, I always strongly advise my client to consult with an accountant before the short sale is completed.

Chicago Real Estate Attorneys of Pissetzky and Berliner Say:

As the economy struggles, short sale will continue to be prevalent in the Chicago Real Estate Market. It is important to properly advise prospective clients about the benefits of a short sale versus a foreclosure, while still explaining that a short sale still has negative ramifications.