short selling a property from 575 purchase price to 159.That's the only property i have.What things can i do to minimize the financial impact?

Is it an investment property or are you living in it?

If you bought it during a certain time frame as owner occupied you can write off most of the perceived gain with the 1099.

If you lost everything you can have a tax person fill out the insolvency form so you will owe no taxes OR the accountant can work the perceived gains in your favor with write downs.

You need to see a CPA or TAX ATTORNEY.

I bought it in Dec. 05. I lived in it for around 6 months,then rented out.

That sounds just like my house I sold in CA. I bought it in 1999 for $172K and sold it in 2005 for $575K. It is now on the market as a foreclosure for $159K.

Just like super said, talk to your attorney and CPA. In the past when companies had losses, if they could not write off all the losses in the first year they could carry them over and use the unused losses in future years. This might work for you since it was an investment,Good Luck!