If partner W with a $3,000 basis in her 25% interest receives $10,000 of capital assets, how much income must she recognize as a result of the liquidation?

The WXYZ Partnership has the following two assets before its liquidating distribution to partner W:

Accounts receivable: Basis $0 Value $20,000

Capital assets: Basis $12,000 Value $20,000

If partner W with a $3,000 basis in her 25% interest receives $10,000 of capital assets, how much income must she recognize as a result of the liquidation?

$0

$2,000 capital gain

$5,000 ordinary income

$10,000 ordinary income

 

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