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Understanding how hobby-loss rules apply to your garage-condo purchase

Many people have one or more hobbies that they’d love to transform into a business. Perhaps you collect and restore cars or handle performance modifications. Or maybe you’ve got expertise buying and selling vehicles, and have thought about building that into a business.

What does this mean if you’re considering the purchase of a garage-condo at Monterey Motorsport Park to serve as the home for your hobby-business?

Profit Makes Perfect

Remember the adage “practice makes perfect”? In this case, if you make a profit from your business-hobby, perfect! You’ll be able to take full advantage of standard business write-offs, money-saving cost segregation and all of the typical deductions for your use of your garage-condo.

But…if you’re expecting to consistently operate at a loss while still taking advantage of the tax write-offs available to a profitable business, there are some requirements you must meet.

Show a Path to Profitability

Basically, the IRS and California Franchise Tax Board want to see that you have a plan and are working toward becoming profitable. You can demonstrate this in one of two ways:

• Make a profit from your business-hobby in at least three of five consecutive years
• Run your sideline business to clearly show that you intend to turn it into a profitable venture (This is the only way that a number of big-name ecommerce ventures, with billion-dollar losses quarter after quarter, are able to function and take the appropriate deductions.)

How do you prove this future profitability to the satisfaction of the IRS? In short, you must:

• Operate your venture in a business-like manner
• Choose a hobby or avocation in which you or your advisers have significant expertise
• Be able to point to a track record running a similar venture in the past
• Invest a significant amount of time into your sideline business
• Show that the assets you hold have a high likelihood of rising in value
• Earn profits from time to time and build a strong financial position

As with any financial matter, be sure to discuss your hobby-business plans with your CPA and other financial advisors. You can read more on this topic in this hobby-loss letter we worked with a financial expert to prepare.

Garage-Condo Sales Revving Up as Complex Opens

Construction is wrapping up at Monterey Motorsport Park, with the first owners moving into the four-building, 90,000 sq. ft. complex — with luxury garage-condos ranging from slightly less than 700 sq. ft. to nearly 2,100 sq. ft. Approximately 60% of the units have already been sold.

The upscale garage-condos are ideal for hobby-businesses involved in car collecting, ecommerce sales of vehicles, or maintenance and modifications. Non-car-related businesses are welcome as well, as long as they meet community CC&Rs. Attractive features include:

• A stylish design with modern clean lines, stone wall treatments and welcoming entry canopies for some units
• Ceilings soaring up to 25 feet, with large roll-up doors for easily moving vehicles in and out — and a standard walk-in door for you and your guests
• Mezzanines 13 feet above the garage floor, accessible via an interior staircase. Many owners are planning to customize this space into an office or personal retreat
• Blazingly fast fiber-optic-based Internet and cable TV options for web, TV and phone service
• Completely fenced complex with access-controlled entry gates, abundant lighting, video in common areas, and proactive remote guarding service from Elite Interactive Solutions

To arrange a tour or learn more about why Monterey Motorsport Park is the perfect place for you to locate your hobby-business, contact one of our brokers or development team members:

• Josh Jones, Mahoney & Associates, [email protected], (831) 233-2196
• Ryan Clark, Cushman & Wakefield, [email protected], (831) 755-1635
• Dennis Chambers, [email protected], (408) 605-6760
• You can also get in touch with Gordon McCall, who’s part of the development team and will be relocating his business — McCall Events — to the community upon build-out, at [email protected] or call (831) 372-9311.
• Or you can contact Ralph Borelli at [email protected] or call (408) 521-7117.