Everything of value that you provide to your sub-contractor is considered part of their taxable income and must be reported on their 1099-NEC. If this was clearly business property that must be returned to you if the subcontractor stops performing for you, and could only be used for work, then you would list it as a business asset and you would either expense or depreciate it in the normal
manner of other business assets. But because this was given free and clear to the subcontractor, it is part of their compensation. You should include it in the value of the 1099-NEC box 1 compensation, and in that case it is a deductible business expense to you as part of their compensation. The subcontractor may then list it as one of their business assets and depreciate it according to the rules that would apply to them, including tracking what percentage of the time it’s actually used for their business or personal use. They can also use it for other clients, if they have other clients, in the course of their own regular schedule C business.
