Question

Mary traded furniture used in her business to a furniture dealer for some new furniture. Mary originally purchased the furniture for $40,000 and it had an adjusted basis of $20,000 at the time of the exchange. The new furniture had a fair market value of $35,000. Mary also gave $5,000 to the dealer in the transaction. What is Mary's adjusted basis in the new furniture

Answer 1

$25,000

Step-by-step explanation:

In the case of exchange of asset the adjusted basis of new asset will be equals to the the adjusted basis of old assets at the time of exchange and any consideration payment resulted from exchange of assets.

In this question the old furniture has adjusted basis of $20,000 at the time of exchange and Mary paid additional $5,000 for the exchange of furniture.

Adjusted Basis = Adjusted basis of old furniture at the time of exchange + Consideration for the exchange of furniture

Adjusted Basis = $20,000 + $5,000 = $25,000