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:

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
What are the tax effects of Penny’s racing income and expenses assuming that the racing activity is a hobby for Penny?