John became a limited partner in JAB Partnership on January 11, Year 1. His adjusted basis in the partnership on December 31, Year 1 was $40,000 (including $30,000 as his share of partnership liabilities). John sold his interest for $20,000 on December 31, Year 1. What is the amount and character of the gain or loss that John should report on his Year 1 individual income tax return? Assume that the partnership had neither earnings nor losses during Year 1.

Select one:

A.

$10,000 ordinary income

B.

$20,000 short-term capital gain

C.

$20,000 ordinary income

D.

$10,000 short-term capital gain