USA Short Sale/residential Rental

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Can the amount of debt forgiven in a short sale of a residential rental (Condo) be included as part of the sale amount in determining gain or loss? Adjusting basis will accomplish the same thing.
The federal return works even if the 1099C amounts are segregated and reported as forgiveness of debt income. However, the problem is with the state of Massachusetts. It does not offset the capital loss against the forgiveness of debt income.
 

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