There seems to be a perpetual gray area when it comes to understanding what the tax consequences are if you decide to short sell or foreclose on your home. I have spoken with people who have been under the assumption that if they foreclosed there would be less of a tax consequence than if they went through the short sale process. This article makes some interesting points. Of course the only real way to understand the implications for your situation would be to consult your tax advisor or attorney.
http://www.inman.com/buyers-sellers/columnists/tara-nicholle-nelson/worse-tax-bite-short-sale-or-foreclosure
