Teresa, a self-employed consultant, traded in her old computer for a newer model

Question

Teresa, a self-employed consultant, traded in her old computer for a newer model. In addition to trading in her old computer, Teresa paid $7,000 for the newer model. Other relevant information about the trade-in is shown below:

Cost of original computer traded in $ 8,000

Adjusted basis of original computer at date of trade-in 1,000

List price (FMV) of new computer 10,000

Trade-in allowance (FMV) for old computer 3,000

Teresa's basis in the new computer is:

1) $1,000.

2) $7,000

. 3) $8,000

. 4) $10,000.

5) none of the above.

Explanation / Answer

Teresa's new basis in computer will be = Adjusted basis in the old computer + additional cash paid for the trade in

                                                                    =$1,000+$7,000

                                                                    =$8,000

So answer 3. is correct.

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