What Paula said is right & wrong. IRS Publication 4681 Page 4 & Page 12-13 Sales & Dispositions (Short Sales & Forclosures) and IRS Topic NO 431.
From how I read IRS Topic 431 and IRS Publication 4681 if the debt discharged amount is the same or LESS than the FMV of the property then their is no COD income to report. There could be a tax on any gains since its treated as a sale.
I am posting from the topic and publication below.
IRS Topic No. 431
Caution: If property secured your debt and the creditor takes that property in full or partial satisfaction of your debt, you're treated as having sold that property to the creditor. Your tax treatment depends on whether you were personally liable for the debt (recourse debt) or not personally liable for the debt (nonrecourse debt).
If your property was subject to a recourse debt, your amount realized is the fair market value (FMV) of the property. Your ordinary income from the cancellation of the debt is the amount of the debt in excess of the FMV of the property that the lender forgives. You must include this cancellation of debt in your income unless an exception or exclusion, discussed below, applies. The difference between the FMV and your adjusted basis (usually your cost) will be gain or loss on the disposition of the property.
IRS Publication 4681:
"Sales or Other Dispositions
(Such as Foreclosures and
Repossessions)
Recourse debt. If you owned property that
was subject to a recourse debt in excess of the
FMV of the property, the lender's foreclosure or
repossession of the property is treated as a sale
or disposition of the property by you and may
result in your realization of gain or loss. The
gain or loss on the disposition of the property is
measured by the difference between the FMV
of the property at the time of the disposition and
your adjusted basis (usually your cost) in the
property. The character of the gain or loss (such
as ordinary or capital) is determined by the
character of the property. If the lender forgives
all or part of the amount of the debt in excess of
the FMV of the property, the cancellation of the
excess debt may result in ordinary income. The
ordinary income from the cancellation of debt
(the excess of the canceled debt over the FMV
of the property) must be included in your gross
income reported on your tax return unless one
of the exceptions or exclusions described later
applies. For more details, see Exceptions and
Exclusions, later.
With that said there would be no 1099C cod income to report since the amount of debt discharged is not greater than the FMV amount but there would need to be a schedule D capital gain or loss to report the sale to the IRS. Exclusions and Exemptions on Form 982 doesn't apply in this case.
