Carl
Level 15

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No. Your rental property is passive income, while the business sale is not. You can only use passive expenses to offset passive income. The defaulted buyout of the business is not a passive loss. Therefore you can't use it to offset your passive gains.
I also question if you actually have a loss. If you were not paid for the business, then in the bankruptcy I would expect she lost the business back to you. If so, there is no loss I can see, based on the limited information you've provided at this point.