If you sale for a loss you will have no capital gains tax. If you pay the lender back less than you owe you will have income from debt relief on the amount that you did not pay back for federal tax purposes. However, if this is your personal residence and you relieved of less than $2,000,000 in debt there is an exclusion and you will not be taxed on the debt relief. There is also an exception if you are insolvent or bankrupt. You should seek the counsel of a local tax professional to review your particular situation.
Any individual seeking legal advice for their own situation should retain their own legal counsel as this blog provides information that is general in nature and not specific to any person's unique situation. Circular 230 Disclaimer - Advice given in this Blog cannot be used to eliminate penalties with the IRS or any other governmental agency.