The best solution would be a loan modification if you and the home qualify. Depending on what is owed and if there is 2nd will determine the likely hood of a short sale, which are usually the 2nd best options. Weather you do a Deed in Lieu or a foreclosure it is my understanding that they will impact your credit the credit the same.
â€¢ As for the taxes speak to an accountant but you may qualify for an exemption check out form number 982C. Here are the resources that might help to answer:
â€¢ Frequently asked questions on the Mortgage Forgiveness Debt Relief Act
â€¢ Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness
â€¢ Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonments
Each situation is different and not something that could be given a blanket answer. If you like contacts me and I can look up the information and give you a better educate answer.