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Hi from just answer. I'm PDtax, and can assist.
The suspended passive losses will be usable in the year of sale without limitation. That should allow you to use the 400k losses to offset the 600k debt forgiveness.
Thanks for asking at just answer. Positive feedback is appreciated. I'm PDtax.
The interaction of the suspended loss, loss on sale and debt forgiveness income ask get 1040 treatment. The property sale is reported on 4797. Any available loss can offset w2 or other income.