Partners X and Y form an equal 50/50 partnership. Partner X contributes property having a fair market value of $40,000 and a basis of $20,000 to the partnership. Partner Y contributes $40,000 in cash. The property is later sold for $30,000. If the partnership uses the traditional method of allocation, how much gain does each partner recognize for both book and tax purposes?

A) Partner X recognizes a $10,000 gain for tax purposes and also a $10,000 gain for book purposes because the adjustment for book purposes cannot be less than the amount for tax purposes. Partner Y recognizes no gain or loss for book or tax purposes

B) Both partners recognize a gain of $5,000 for tax purposes and a loss of $5,000 for book purposes because it is an equal 50/50 partnership.

C) Partner X recognizes a $10,000 gain for tax purposes and a $10,000 loss for book purposes because the adjustment for book purposes must be made so as to set Xs basis in the partnership interest equal to Xs capital account balance. Partner Y recognizes no gain or loss for book or tax purposes.

D) Partner X recognizes a $10,000 gain for tax purposes and a $5,000 loss for book purposes resulting in a disparity between Xs basis in the partnership and Xs capital account balance. Partner Y recognizes no gain or loss for tax purposes and a $5,000 loss for book purposes, also resulting in a $5,000 disparity between Ys basis in the partnership interest and Ys capital account balance.