What is my cost basis for an old computer given to me by a client when they upgrade?

If they give it to you, the cost basis is ZERO because that's exactly what you "paid" for it.

The basis of gift property is calculated as below. If it was depreciated because it was used in their business, your adjusted basis is that depreciated amount.

Question: What is the basis of property received as a gift?

Answer:

To figure out the basis of property you receive as a gift, you must know three amounts:

• The adjusted cost basis to the donor just before the donor made the gift to you.
• The fair market value (FMV) at the time the donor made the gift.
• The amount of any gift tax paid on Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return.

If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your adjusted basis depends on whether you have a gain or loss when you dispose of the property.

• Your basis for figuring a gain is the same as the donor's adjusted basis, plus or minus any required adjustments to basis while you held the property.
• Your basis for figuring a loss is the FMV of the property when you received the gift, plus or minus any required adjustments to basis while you held the property.

Note:  If you use the donor's adjusted basis for figuring a gain and get a loss, and then use the FMV for figuring a loss and get a gain, you have neither a gain nor loss on the sale or disposition of the property.

If the FMV is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis at the time you received the gift. If you received a gift after 1976, increase your basis by the part of the gift tax paid on it that is due to the net increase in value of the gift. To figure out the net increase in value or for other information on gifts received before 1977, see Publication 551, Basis of Assets. Also, for figuring gain or loss, you must increase or decrease your basis by any required adjustments to basis while you held the property

The does not apply to a business in this case, because it's not compensation. If the old computer was used to pay for the services rendered to the client, then the FMV of the computer would be taxable income to the business, and not a deduction. If it was given to the business owner, then there's nothing reportable by the business owner as either income or expense for the computer that business received from the client at not cost, and for nothing in exchange. Therefore if the business sells the computer, the cost basis of the computer is zero and all money received on the sale of the computer is taxable income to the business.

Oh and be careful with doing this. If your business is registered as a "service based" business like mine is, then if you're selling product for a profit on that product, you are no longer a service based business, but a retail business. Depending on your state (FL is one) you would then be required by state law to collect and pay state sales tax.

Ok I'll just keep it at $0 cost basis since likely they depreciated it and i have no evidence to prove otherwise.  Also, I do have a resale certificate and do collect and pay sales tax on goods so that wont be a problem.

Since the computer was given to you, and was not compensation for products or services you provided, the cost basis is zero. Now if you had dome something like "I'll knock $50 off your invoice if you let me take the old computer", then that would allow you to claim the $50 you knocked off as part of your "cost of goods sold" in the Inventory/COGS section, in the tax year you sold that computer.