Jangyoun sells investment land having a $30,000 basis to a partnership in which he has a 60% partnership interest. The partnership pays $26,000 (FMV) for the land. Later, the partnership sells the investment land to a nonpartner for $31,000. On the sale of the land, the partnership must recognize a

Question

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When Jangyoun sells the investment land to the partnership at $26,000, he recognizes a $4,000 loss ($30,000 basis - $26,000 selling price). Because Jangyoun has a 60% partnership interest, he can deduct $2,400 of this loss on his individual tax return.
When the partnership later sells the land to a nonpartner for $31,000, the partnership's recognized gain is the difference between the selling price and its basis in the land. The partnership's basis in the land is $26,000 (the price it paid Jangyoun). Therefore, the partnership's recognized gain is $5,000 ($31,000 selling price - $26,000 basis). 
Since the gain is from the sale of investment land, it is a capital gain. The partnership recognizes the gain, but Jangyoun, as a partner, does not recognize any gain or loss until he sells his partnership interest. Therefore, the correct answer is B, $1,000 capital gain.

Jangyoun Sells Investment Land Having a $30,000 Basis to a Partnership