hopefully others will add to my comments
under IRC 108
(3) Qualified real property business indebtedness The term “qualified real property business indebtedness” means indebtedness which— (A) was incurred or assumed by the taxpayer in connection with real property used in a trade or business and is secured by such real property, (B) was incurred or assumed before January 1, 1993 , or if incurred or assumed on or after such date, is qualified acquisition indebtedness, and (C) with respect to which such taxpayer makes an election to have this paragraph apply.
if the debt qualifies what you can do rather than picking up the canceled debt as income is reduce the basis of the underlying property. you file form 982 with your return. obviously, if the nonrecognition income amount can't exceed the adjusted basis of the property.
use is not mandatory so you may want a pro to look at your situation to see if this is a better option, assuming it qualifies, than picking up the debt as income
