RE: First of all, how does a property have $120K of passive loss carry forward.  And then to boot have a loss on sale of $30K. I would have fired them as clients long ago, because some bookkeeping does not seem right.

@taxiowa Perhaps you're in a prosperous state like CA, and this would be far fetched.  How about a rental, say, in Coalville, UT, after the coal business went dry?  Or, perhaps Gary, Indiana? 

If the TP had high income and couldn't deduct the 25K per year, OR had other rental loss with high mortgage interest and depreciation, 12K of PAL for ten years would be $120K.  "The bookkeeping not seemed right" bit could be inconclusive.

Anyway, your implied comment that the passive loss would be freed up and fully deductible (Then all previous losses will also be recognized) is right on.  The sale should be marked "EDPA" - Entire disposal of Passive Activity.

Regarding the loss in the sale, it's a 4797 loss and NOT subject to capital loss rules.  The whole shebang $30K is deducted as an ordinary loss, assuming it was not challenged as a rental activity.  So the TP would end up the following, as related to the info given.

Rental loss (Sch E)  $120K

Form 4797 loss $30K

Capital gain $6K