Penny, a full-time biochemist, loves stock car racing. To feed her passion, she

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:

Calculate Penny

Prize money $2,500   Expenses:   Transportation from her home to the races 1,000   Depreciation on the dirt track car 4,000   Entry fees 3,500   Oil, gas, supplies, repairs for the dirt track car 2,050

Explanation / Answer

AGI Before activity: $97,500

Hobby Rev. : $2,500

AGI after activity: 100,000

Hobby expense: 10,550

Hobby expense after revenue limit: 2,500 (lessor of hobby rev. and hobby expense)

2% AGI Floor: 2,000

Deductible expenses: 500 (hobby expense after revenue limit - 2% AGI floor)

$500 is the answer.

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