Can Rental Equipment be counted as rental property?

[jpalatinus]

 A friend owns a landscaping business and wants a large piece of equipment like a bulldozer attachment. I was considering financing it for him, but he proposed that I just buy the equipment myself and lease it to him.  It seems then I could claim depreciation on the equipment against the rental income that he would pay me.  If we pursued this could the rental income be entered in turbo tax under rental property like my house rental?  or would I have to declare separate business income or something?

thanks

[Mike9241]

it would be the rental of personal property. the issue you may not be aware of is that profit from the rental of personal property is subject to self-employment tax.  this is a separate business from real estate rental and actually gets entered on schedule C.  renting property or financing it each presents risks but they're different.

[tagteam · Accepted solution]

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@jpalatinus wrote:

....If we pursued this could the rental income be entered in turbo tax under rental property like my house rental? 

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No. Schedule E income and expenses (Part I) is used to report income/expenses from rental real estate and royalties, not the rental of personal property, such as a bulldozer or an attachment.

See https://www.irs.gov/taxtopics/tc414

Personal Property Rentals

• Report income and expenses related to personal property rentals on Schedule C, if you're in the business of renting personal property.
• Report income on line 8k and expenses on line 24b of Schedule 1 (1040), if you're not in the business of renting personal property.

[jpalatinus]

So would it be fair to say in this arrangement I would be in the business of renting personal property?  It would be a significant expense, and I would virtually never use the item for personal use as it would be leased or rented to a friend. So it would be inaccurate in fact to call it personal property as it would have been purchased for this purpose of renting it out for a profit.  Its just it would be the only piece of equipment I would do this with.

It seems if I place it on schedule C the taxes are significantly less: I would probably say it is not Qualified business income as I would be quite passive receiver of rent payments but this wouldn't change the fact that it is a business and can be listed in schedule C?

thanks

[tagteam · Accepted solution]

The terminology is legal; there are two types of property; personal and real. Everything that is not real property (aka real estate) is personal property, tangible or intangible and whether that personal property is held for personal use, business use, or investment purposes. Do not conflate the IRS term "personal use property" with the legal term.

If you have a one-off with respect to renting this piece of equipment and are not starting or planning to be in the business of renting personal property, then this would generally not be reported on Schedule C.