it is not taxable. there is an exception for canceled debt, including interest, that would have been deductible if paid
IRC 108
(e)General rules for discharge of indebtedness (including discharges not in title 11 cases or insolvency)
For purposes of this title—
(2)Income not realized to extent of lost deductions
No income shall be realized from the discharge of indebtedness to the extent that payment of the liability would have given rise to a deduction.
