sounds like a passive activity but(?) . a trade or business is not a passive activity if the taxpayer materially participates in the activity
see reg 1.469-5T. must meet one of the seven tests
https://www.law.cornell.edu/cfr/text/26/1.469-5T
certain activities are not considered participation
1) work of a type not customarily performed by the owners done in an attempt to avoid the passive activity rules
2) investor participation, unless the individual is directly involved in day-to-day management or operations
I suggest you have them provide an explanation of why the PAL rules would not apply and then have it evaluated by a pro.
the other things 1) will there be a profit over the terms of the leases - if not, hobby loss rules would apply which could result in the income being taxable but no deductions or 2) the activity would be reported on schedule C and profit is subject to self-employment taxes
The rental of personal property is subject to self-employment tax if it is classified as a business activity. This classification is determined by the continuity and regularity of the rental activity.
