And yes, it's possible that if the bank allows a short sale that you might be liable for capital gains on the banks loss as the home may not be considered your personal or primary residence by the IRS. This would be a question for the IRS. If it was determined that the home could qualify as your primary residence, the 'mortgage forgiveness debt relief act' would spell out how you could avoid paying capital gains on the banks loss.
Ask yourself some questions and you will figure it our yourself.
Ok you say that it is not making you any money does it carry itself? If so consider keeping it. If you are losing money, how much? Eventually it will be paid off it could be a good investment over time.
If it is a burden to carry it try to find the best way out of it.
How much upside down are you? If just a little, you could ask the lender to not report the short sale against your credit in return for you signing a note for the balance. Now days short sales and foreclosures hurt your credit just as much. If so get that in writing do not take their word for it. You may need that letter later to get if off of your credit.
It may be that your credit is not that important at this point, but it sounds like your integrety is. So you have to weigh it and decied what is best.
If you did it was very kind of them to do that for you. Who ever it is with their name on it will have their credit destroyed if you short sale it.
I always recomend doing the right thing.