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A short sale is one where the lender/bank accepts less than what they are owed which is why they issued you a 1099-C. While the lender agrees to settle the account for less, they still take a loss so it's reported as such. If you think about it, using two different accounts each owing $100k on the remaining mortgage, the first borrower sells his house and pays off the mortgage balance in full, the second one is underwater for his market and gets the bank to accept a settlement of $75,000 or $25k less than the current mortgage amount (sans the name "short") borrower sells the house and pays the lender the agreed settlement of $75k and takes a $25k loss. Both liens are released and "satisfied", but they are NOT reported the same - and shouldn't be.
As far as the 1099-C you should be exempt from paying that on your primary home loan. This provision was put in place during the mortgage meltdown housing crisis in 2007 and has basically has been extended every year since then.
https://www.thebalance.com/canceled-mortgage-debts-3192877
https://turbotax.intuit.com/tax-tips/home-ownership/how-short-sales-and-foreclosures-affect-your-tax...
