Race Car and Car Mechanic Bus.

[Super Mom]

Please forgive my ignorance, I plan to research thoroughly, just sort of panicky this close to the 15th and have all sorts of ideas running through my head on this, and the knowledgeable feedback on this board is awesome!!!! I have a business (partnership) that has a racecar, advertises the repair business and get's racing and other business because of it. The owner (partner) has been paying all of the expenses himself (hobby?) but the income has been going into the business. They probably should be getting some expenses on this to offset business income. I'm thinking I read somewhere that the IRS went for race car expenses with a car business? And then I'm thinking should the bus. capitalize and depreciate the racecar and motor? Or maybe not since is LLC and would make it a business asset? Since it's a partnership and what would technically be a hobby for Jo Schmo should something just flow thru on Sced K? Once again, forgive my ignorance, I fully intend to research this, I'm just throwing out my rambling thoughts to the great minds on this board!

[Super Mom]

OK, thought on this a little more. What expenses for the racecar may we be able to justify as advertising, without making the car a business asset?

[DaveO]

The cost of the lettering and signage on the car would be a no-brainer. Expenses up to winnings should pass mustard pretty easy too. In that number I would figure entry fees ahead of car expenses. If he can show that get gets business from his presence at the track then he can justify racing as an advertising expense. The problem is he likely has no realistic hope of making a profit at racing so it's hard to call it a business.

I have one client with a machine shop who does a lot of speed work. Probably 60% of his total business is performance based. The car sets in front of the shop when it's not on the track and does act as a bill board for gearheads. None the less I limit him to the signage and expenses up to winnings. We have been through two audits with no adjustment on the race car.

[Super Mom]

When you say you limit him on expenses up to winnings, that's totally understandable. However, does your client have the car as an asset being depreciated?

[DaveO]

No, I consider the asset to be personal. What is the class life of a race car? If racing was his primary business I guess I'd have to re-think how I do his return. I made the successful arguement to the auditors that the car was intergal to his performance business. On the second, a revenue audit, the auditor visited the shop and looked at his car and discussed his racing activity. He made a few adjustments on non-business items but it still ended in a no-change. I'm really glad the car wasn't on the depreciation schedule. Although the car was a vital advertising tool for him the motivation to race is purely personal. He is a machinist because he loves racing. He has wanted to deduct the entire cost of the car from day one and claims others are doing so. That's fine because I don't do their returns and won't have to sweat the audit.

[Super Mom]

Thanks Daveo for your help.