Should I walk away from my real estate property?

There will be some tax repercussions if debt is forgiven on business property. The difference between the $538k owed and the short sale price will be treated as income to the business. Your credit will also take a hit. Instead of doing a short sale, consider trying to modify the loan. I would not take on the entire loan from your partner as you are only liable for half. Now you are $95k under water. Why build in another $95k loss? The response given is not intended to create, nor does it create an ongoing duty to respond to questions. The response does not form an attorney-client relationship, nor is it intended to be anything other than the educated opinion of the author. It should not be relied upon as legal advice. The response given is based upon the limited facts provided by the person asking the question. To the extent additional or different facts exist, the response might possibly change.

There is really no hard and fast rule here. If you think the market can recover, hold on to the property. If not, your best bet would be to negotiate a short sale. Whatever you do ...do NOT let your partner off the hook without receiving some form of consideration for taking over the headache.