Here are your options.
1. Foreclosure - basically you stop payment, bank will issue a Notice of Default. If you can't
cure default, they sell the house in auction @4 months after NOD.
2. refinance, credit should be good, I assume you own a house so you have
to qualify after lender consider all your obligations.
3. Short sale since banks still will forgive what you owe after transaction.
4. Deed in Lieu, call the bank and basically tell them you're returning the house.
I believe this is worse than short sale cause they will dig deeper than short sale
regarding your finances. If they agree, you have to get it in writing that whatever price
they sold it for the balance is forgiven and you're free and clear of your obligations.
If you ahve a second trustee, they have to agree also if not you will still have to pay.
At this time your best best is refinance or a short sale. As for the tax and credit the, best advice is
consult a lawyer or a tax professional.