Do you pay taxes on a shortsale?

[Timothy Rogers]

Hello,

My wife's co-worker has a home in Savannah, Georgia that is upside down. She owes 45K, but property is worth less. She lives in Dallas and was renting the property out. The tenants moved out and squatters moved in and destroyed the property. She wants to know if she does a shortsale will she be taxed on it. I told her I would present the question to the BP forum. I did not want to give her an answer when I am not really sure myself. Please help her and myself with the tax question.

Thanks,

Tim.