As a real estate investor myself that has short sold one of my upside down rental properties, I did not have to worry about paying taxes on the difference between the mortgage and the sales price. I keep detailed records of all the expense and income from the rental and I had a loss each year. Therefore, my losses cancelled out any taxes I would have owed the IRS. If you have a loss on your rental property, then you should be able to use those losses to offset any IRS taxes. If you dont have your accounting records in order, then I can refer you to a tax accountant that can help you with your financials.
I have help a lot of investors similar to yourself short sell their rental properties. I started doing short sales doing the real estate boom so I have a lot more experience than most Realtors. Most real estate agents did not start doing short sales until real estate prices started falling. I would be more than happy to assist you with short selling your rental property as well. Please give me a call at the number below to discuss the short sale process in greater details.
Sean Heideman, Broker / Owner