John owns a 55% interest in partnership XYZ. The partnership purchases land from John for $70,000 when Johns basis in the land is $100,000. The partnership also purchases equipment from John, which it subsequently places in service for use in its operations, for $25,000 when Johns basis in the equipment is $20,000. The equipment was a capital asset in Johns hands. As a result:

A) The partnership will assume a basis in the land of $70,000 and a basis in the equipment of $25,000. John will recognize a capital loss of $30,000 on the land and a capital gain of $5,000 on the equipment.

B) The partnership will assume a basis in the land of $70,000 and a basis in the equipment of $25,000. John will recognize a capital loss of $30,000 on the land and an ordinary gain of $5,000 on the equipment.

C) The partnership will assume a basis in the land of $100,000 and a basis in the equipment of $20,000 (both equal to Johns basis prior to the partnerships acquisition of the properties). John will recognize no gain or loss unless the $95,000 received in exchange for Johns land and equipment exceeds Johns basis in the partnership after it is first adjusted for Johns basis in the properties acquired by the partnership.

D) The partnership will assume a basis in the land of $70,000 and a basis in the equipment of $25,000. John will recognize no loss with respect to the land and an ordinary gain of $5,000 with respect to the equipment. Further, if the partnership later sells the land for $85,000, it will recognize no gain on the disposition.