How to Race Cars: A Guide to Funding and Getting Started

"There are only three sports: bullfighting, motor racing, and mountaineering; all the rest are merely games."

- Ernest Hemingway

Racing cars is a challenging and exhilarating sport that requires a combination of technical skill, physical fitness, and mental toughness. It is also a very expensive sport, and finding the funding to race can be a major challenge.

There are three main ways to fund a racing career:

1. Cash out of pocket: This is the most common way to fund a racing career. It requires a significant amount of money, and it can be difficult to save up enough money to race on a competitive level.

2. As an expense to a company: Some companies will allow their employees to race cars as a business expense. This can be a great way to get started in racing, but it is important to make sure that your company has a policy that allows this and that you are able to meet the company's requirements.

3. Direct sponsor funding: This is the most difficult way to fund a racing career, but it is also the most rewarding. If you can find sponsors who are willing to support your racing career, you will be able to race without having to worry about the financial burden.

One way to mitigate federal taxation is to utilize bonus depreciation. You can navigate the maze by combining asset based lending with entities to create both tax deductions and an interest rate spread.

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Consider this successful example we’ve seen implemented many times over:

• A driver borrows $500k from their investment portfolio. These ‘asset based loans’ usually index off a floating interest rate and are currently running in the 6% range.

• The driver then LENDS this money to their entity (typically a corporation be it C / S / LLC or a Trust) that will own the car(s) and pay an interest rate on the loan from the driver (for example 9%).

• The entity then buys and owns the race car or transporter.

• The interest paid by the corporation is a deduction to the corporation (assuming there is revenue coming in) - AND - to the driver as a lender in this example.

For our engagement, we used this mechanism for both a car and transporter purchase. We also utilized the 100% bonus depreciation deduction to then deduct the cost of the 60,000 lb transporter we purchased. The 2023 tax year has reduced the amount of the deduction from 100% to 80%, which is still a significant opportunity. We take these deductions against revenue we receive from renting out seats in our car for endurance racing as well as periodic advertising sponsorship revenue.

It’s important to note that the Section 179 Bonus Depreciation schedule ramps DOWN over the next 3 years. The current schedule looks like this:

• 2024 - 60%

• 2025 - 40%

• 2026 - 20%

• 2027 - 0%

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In addition to finding the funding to race, there are a few other things you need to do to get started in racing. You need to get a racing license, find a team, and purchase a car:

• Racing license: To race in most competitions, you will need to obtain a racing license. You can obtain a racing license through a variety of organizations, such as the Sports Car Club of America (SCCA) or the National Auto Racing Association (NASCAR).

• Team: Once you have a racing license, you need to find a team. A team will provide you with a car, support, and guidance.

• Car: Finally, you need to purchase a car. The type of car you need will depend on the type of racing you want to do. For example, if you want to race in Formula One, you will need a Formula One car.

Racing cars is a challenging and rewarding sport. If you have the dream of racing cars, don't let the cost stop you. There are a number of ways to fund a racing career, and with hard work and dedication, you can achieve your dream.