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Yes, you can use Form 982 to exclude the income from cancellation of debt to the extent you are insolvent. You can use the insolvency worksheet in IRS publication 4681 :
Basically, the amount your debts exceed your assets is the amount you are insolvent. This is the maximum exclusion.
Thank you for your question,
There are several exclusions for cancelled debt, one of which is due to insolvency. There is also an exclusion for qualified principal residense indebtedness, but you are right, this one doesn't apply to rental property.