The IRS has a form 982 that says if you filed bankruptcy you don't have to pay taxes. Does this include a rental property. I used to live in it for 13 months. I only rented it for 18 months. Could someone please advise me.
No. Debts discharged through bankruptcy (including on rental property) are not considered taxable income. This exception is discussed in detail in IRS Publication 4681:
The regulations where changed in 2007. Why do the short sale anyway? Makes no sense for the homeowner if you are going to file bankruptcy.