I bought a house when I lived in Texas and lived there 2006-2008. I moved back to the east coast and began renting out the house. I lost my job in 2012 and was unable to make the payments on the rental house. I agreed to an Abandonment/short sale. I now have a 1099-C and 1099-A. When I enter all the information into Taxact it has me owing over $3000. It is just us and 3 kids, I made $40K and the cancellation of debt is $27K. How can I exclude/exempt that from my income?

Typically, you shouldn't owe taxes on a short sale thanks to the 2007 Mortgage Forgiveness Debt Relief Act, which was extended through the year 2014; I guess you need to file 982 for 1099c