It does not appear that you will need to recognize any relief of indebtedness income. Here is why
typically, when the lender accepts less than what you owe on the full balance, this difference will become discharge of indebtedness income and it is taxed as “ordinary income” (See 26 U.S.C. § 61 and §§ 1001 through 1016).
Here are the common exceptions to the IRS
discharge of indebtedness income rule. There may be other exceptions as well. You can determine if any apply to your situation.
1. Debts discharged through bankruptcy are not considered taxable income.
2. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income.
3. Personal residence. The Mortgage Forgiveness Debt Relief Act of 2007 excludes from taxation discharges of up to $2 million of indebtedness that is secured by a principal residence and is incurred in the acquisition, construction or substantial improvement of the principal residence. This special relief is available for three years beginning January 1, 2007, and ending December 31, 2009
4. If you are insolvent when the debt is canceled, some or all of the canceled debt may not be taxable to you.
Therefore, the discharge of indebtedness income may not be considered taxable income under exception #1
I hope that this helps.