Yup. And it's been a thing. I'll go as far to say that Mastodon has a racism problem.
My first move is to just block-- individuals, and whole instances if need be. Hell, I'm quick to block instances anyway! The Internet is vast; I don't need access to every instance nor give every one a chance. I'll report if I feel like it'll do anything.
It also helps when you're on an instance that takes this sort of thing seriously-- you need Mods That Actually Do Something. Furthermore, there are tags you can follow to keep up on what to block, at your discretion.