December 2007 Congress approved a change in the tax law for short sales. The difference between the sold price and the amount your mortgage was forgiven, no longer counts as taxable income. This only applies if the home was your primary residence and not an investment. Again if you sell the home there is no taxable income on the difference..
A short sale occurs when the proceeds from the sale are insufficient to pay off the existing loans and closing costs. Just because you sell at a loss and need to bring money to the closing table does op mean that your lender will authorize a short sale in which they absorb part of the loss. Sometimes you need to bring funds to the closing table.
The amount of forgiveness in the past has been taxable as income. IF your situation meets certain criteria you may be qualified to special treatment. Check with your Realtor or CPA regarding your circumstances.