short sale of 2nd investment home

Two years ago my wifes longtime friend talked her into investing in a Sacramento Ca area 2nd home as an investment. He convinced her to take out a 100 k line of credit on our current home part to be used as a down payment and the rest to be used to make mortgage payments until the property appreciated enough to be sold at a profit.
we are now ready to do a short sale for a loss.
As this is not our principal residence will we be taxed on any debt the banks forgive?
Would forclosure be better than a short sale?