Hi and welcome to Just Answer!The disposition of the property will be treated as a sale at FMV.The rest of cancelled debt will generally be included into taxable income unless insolvency exception may be used.
If insolvency exception may NOT be used - the couple will have long term capital gain $54,000 and ordinary income $46,000
If insolvency exception MAY be used - part of cancelled debt will reduce the basis - but not below zero - thus - the couple will have a long term capital gain $60,000.
When you claim insolvency exemption on the form 982 - http://www.irs.gov/pub/irs-pdf/f982.pdf - we also have to provide a reduction of Tax Attributes - means the basis have to be reduced by the amount of debt forgiven - but not below zero - in your situation that will be reported on the line 10a.So the basis will be adjusted to zero.
The capital gain will be determined as $60,000 (assumed selling price) - zero (adjusted basis) = $60,000.