I have recently been offered loan forgiveness on the mortgage covering a lot that has become almost worthless. How do I minimize these 1099 income?
If I short sell at FMV, can I use the loss in value to reduce the tax burden?

“I have recently been offered loan forgiveness on the mortgage covering a lot that has become almost worthless. How do I minimize these 1099 income?”----->As you can see, when a lender cancels your debt, you may have to report this as taxable income on your federal income taxes, unless there is an exception. There are certain situations in which your debt can be cancelled, but you don't have to report it as taxable income.The debt was discharged in bankruptcy (unless the debt was incurred for business or investment purposes). You were insolvent by least the amount of the cancelled debt at the time the debt was cancelled. Being insolvent means your liabilities outweigh the fair market value of your assets. In other words, you had a negative net worth when the debt was cancelled. To take the insolvency exclusion for cancelled debt, you need to file IRS Form 982. A taxpayer with cancellation of debt income may exclude the income and reduce its tax attributes, including a NOL or the basis of property. Your state's tax law for cancelled debts may differ from that of federal tax law.You can contact Dept of rev of your state for more info in detail.
“If I short sell at FMV, can I use the loss in value to reduce the tax burden?”----->No. A short sale is a sale of real estate in which the sale of the property will fall short of the balance owed and the property owner cannot afford to repay the full amount due. In a short sale the lien holders agree to release their lien on the real estate and accept less than the amount owed on the debt. As your debt is cancelled, you may have tax consequences on the income from cancellation of debt. So you can’t reduce your tax liability by the loss in value of the pty on short sale.