Hi. My name is ***** ***** I will be happy to help you.
When a business property is foreclosed and the debt is cancelled, there are couple of things that need to be considered. Cancellation of debt and possible depreciation recapture. If a business property is foreclosed it is treated as disposed/sold. Based on information you provided, if yo sell the property for 340K, you will not have any depreciation recapture to worry about since your basis (purchase price + improvements - depreciation) are higher than the selling price.
For the cancelled debt, if you are disposing the entire property/business you may exclude the loss as qualified real property business indebtedness. You will use form 982 to exclude the debt.
Here are the conditions:
"Qualified real property indebtedness" is, generally, debt that meets all of the following conditions: (i) it was incurred or assumed in connection with real property used in a trade or business; (ii) it is secured by real property; (iii) it was incurred or assumed after 1992, if the debt is either qualified acquisition indebtedness, defined below, or debt incurred to refinance real property business debt incurred or assumed before 1993, but only to the extent that the amount of such debt does not exceed the amount of debt being refinanced; and (iv) you elect to apply these rules by filing Form 982 with your federal income tax return.
"Qualified acquisition indebtedness" is either (i) debt incurred or assumed to acquire, construct reconstruct, or substantially improve real property that is used in a trade or business and secures the debt, or (ii) debt resulting from the refinancing of qualified acquisition indebtedness, to the extent that the amount of the debt does not exceed the amount of the debt being refinanced.