Question

Penny, a full-time biochemist, loves stock car racing. To feed her passion, she bought a used dirt- track car and has started entering some local dirt-track races. The prize money is pretty small ($1,000 for the winner), but she really is not in it for the money. Penny reported the following income and expenses from her nights at the track: $2,500 Prize money Expenses: Transportation from her home to the races Depreciation on the dirt-track car Entry fees Oil, gas, supplies, repairs for the dirt-track car 1,000 4,000 3,500 2,050 What are the tax effects of Penny's racing income and expenses assuming that the racing activity is a hobby for Penny? Penny's racing income Penny's racing expense Gross income for tax

Answer 1

Under Tax Cuts and Jobs Act (TCJA), any hobby-related expenses cannot be deducted from hobby activities. But 100% of the revenue earned from such activity must be reported as an income.

Since we are assuming racing activity is a hobby for Penny.

Therefore, Penny's racing income is $2,500.

Penny's racing expense is $0 for tax purposes.

Gross income for tax = $2,500