X is a one half partner in a partnership with 4000 of accoun

X is a one half partner in a partnership with $4000 of accounts receivable with a zero basis, capital assets of $6000 with a $2000 basis, and no liabilities. If X receives $5000 of capital assets from the partnership in exchange for his entire interest, which of the following is deemed to occur? A X must recognize a capital gain of $2000 B X must recognize a capital gain of $3000 C X must recognize ordinary income of $2000 or D X need not reconize any gain or loss

Solution

X\'s share in partnership 1/2.

Hence X\'s share of accounts receivable- $4,000/2= $2,000

X\'s share of captital asets =$6,000/2=$3000

X\'s total eligible share = $2,000+$3,000= $5,000

Less Captital assets received in exchange of X\'s interest = $5,000

Ans : D, X need not recognize any gain or loss.