The lenders offering these pay outs may be disclosing something to the sellers to the effect that it might be taxable.

I've been seeing my bid desk discounts decrease significantly in the last 6 months.

Jeff S. you are correct, in a primary residence short-sale, the forgiven 1st TD debt is not taxable.

20% down is the minimum on apartments.Most banks now want 30% down.You can find specific apartment lenders that will do 80% LTV but you can count on the debt service rate being higher.The lenders want more yield for accepting a higher ltv position.Another option if the bank or apartment lender allows is to get the seller to hold a 10 to 15% second loan.This decreases your cash down into a deal and can also allow you to leverage into a bigger complex.For regular apartment loans lenders typically like 90 percent or higher occupancy.

This makes sense only if your not planning to buy more rentals.By extending the term to a 20 or even a 30 year amoritization, not only will your montly debt service decrease, you still have the option to make a higher payment when you have adequate cash reserves.Also, commerical loans tend to have higher rates, so you may be better served with a residential mortgage.

The forgiven debt then becomes taxable income on the tenant's next tax return.  

Let me just answer your question using taxable income.  

I am trying to determine if I can garner any tax advantages if I source from a taxable account.

My numbers don't meet the "rules" but my decreased costs, vacancies and self manAgement.

If you've owned any for over a year, and you can make or have made improvements to increase value substantially, a 1031 exchange can help you do this with no taxable event -- i.e., buy for $100k, improve for $50k, sell for $250k and buy two more properties with the proceeds (or a four plex, or whatever -- a higher yield in exchange for your lower yield.)