If you rent out equipment, vehicles, tools, or other personal property for profit without being in the rental business, you can deduct your personal property rental expenses as an above-the-line adjustment on Schedule 1 of Form 1040. The deduction goes on line 24b, directly offsets the rental income you report on line 8l, and reduces your adjusted gross income whether you itemize or take the standard deduction.1Internal Revenue Service. Topic No. 414, Rental Income and Expenses The authority sits in IRC Section 62(a)(4), which allows above-the-line deductions for expenses attributable to property held for the production of rents.2Office of the Law Revision Counsel. 26 U.S. Code 62 – Adjusted Gross Income Defined
Are You in the Rental Business or Not
The IRS treats casual profit-seeking rentals differently from a rental trade or business, and the classification decides which form you use.
Renting out a concrete saw a couple of times a year is not a business. Maintaining an inventory of equipment, advertising, and renting year-round to many customers usually is. When the activity is a trade or business, income and expenses go on Schedule C and the net profit is subject to self-employment tax. When the rental is for profit but not a business, the income goes on Schedule 1 line 8l and expenses go on line 24b, with no self-employment tax attaching because that tax reaches only trade or business earnings.3Internal Revenue Service. Schedule 1 (Form 1040) – Additional Income and Adjustments to Income
The IRS looks for real profit-seeking behavior: accurate records, reasonable pricing, keeping the asset in rentable condition, and adjusting course when things aren’t working. Lending a lawnmower to a neighbor for gas money doesn’t qualify.
Which Expenses You Can Deduct
Every direct cost of keeping the property functional and available to renters counts. That typically includes:
- Maintenance and repair costs, such as oil changes on a rented vehicle or blade replacements on equipment
- Insurance premiums covering the rental period
- Advertising costs
- Platform or marketplace transaction fees
- Storage costs for property held exclusively for rental use
- Depreciation on the rented asset
When property does double duty for personal use and rental, you split every shared expense by the rental-use percentage. The IRS example: a vehicle used personally 60% of the time and rented the other 40% yields a 40% share of fuel, insurance, and repairs toward the adjustment.4Internal Revenue Service. Publication 527 – Residential Rental Property – Section: Rental Expenses Keep a contemporaneous log with dates, hours, or mileage for each use. Most claims that fail on audit fail here, not because the expenses were fabricated, but because the taxpayer couldn’t prove the split.
For smaller purchases, a de minimis safe harbor election lets you expense items costing $2,500 or less per invoice in the year of purchase rather than depreciating them. You need a written accounting policy in place at the start of the year and must attach the election to a timely filed return.
Depreciation
Depreciation is usually the single largest expense on the return. Rather than deducting an asset’s full purchase price in the year you buy it, you spread the cost over its recovery period under the Modified Accelerated Cost Recovery System. Vehicles, light trucks, and most computer equipment fall in the five-year class; office furniture and most general-purpose industrial equipment sit in the seven-year class.5Internal Revenue Service. Depreciation FAQs
Bonus depreciation can compress that timeline. Recent legislation restored 100% bonus depreciation for qualified property placed in service in 2026, which can allow deducting the entire cost of newly acquired rental property in the first year. Because bonus depreciation reaches property held for the production of income, not just trade or business property, Schedule 1 filers can benefit. Section 179 expensing is different: it generally requires property used in the active conduct of a trade or business, which likely rules it out for non-business rentals.
If you claim any depreciation, attach Form 4562 to your return. It is required whenever you place new depreciable property in service, and it is required every year for vehicles and other “listed property” that can be used both personally and for the rental, regardless of when you bought the item.6Internal Revenue Service. Publication 946 – How To Depreciate Property For mixed-use property, only the rental-use percentage of the depreciation counts.
Limits That Can Cap the Deduction
Hobby Loss Rule
Under IRC Section 183, if the IRS decides your rental isn’t genuinely for profit, deductible expenses get capped at rental income. You cannot generate a loss that offsets wages or investment income. Collect $2,000 renting a tractor, spend $2,500 on maintenance and insurance, and your deduction stops at $2,000.7Office of the Law Revision Counsel. 26 U.S. Code 183 – Activities Not Engaged in for Profit
A rebuttable presumption helps: an activity that shows a net profit in at least three of five consecutive tax years is presumed to be for profit. Failing that test doesn’t automatically doom you, but it shifts the burden, and the IRS then weighs factors including how the activity is run, your expertise, time invested, financial status, and whether you’ve changed course to improve profitability.
At-Risk Rule
IRC Section 465 limits losses to the amount you have “at risk” in the activity: cash invested, adjusted basis of contributed property, and amounts borrowed for which you are personally liable. Nonrecourse debt and amounts protected by guarantees or stop-loss arrangements don’t count.8Office of the Law Revision Counsel. 26 U.S. Code 465 – Deductions Limited to Amount at Risk For most people renting out equipment they bought with personal funds or a standard bank loan, this ceiling rarely bites.
Passive Activity Rule
Rental activities are generally passive under IRC Section 469, so rental losses can only offset income from other passive activities. Unused losses carry forward until you generate passive income or dispose of the activity.9Office of the Law Revision Counsel. 26 U.S. Code 469 – Passive Activity Losses and Credits Limited A Treasury regulation exception exempts rentals where average customer use is seven days or less, which can apply to daily tool or vehicle hires. When that exception applies and you materially participate, the loss is no longer automatically passive.
Reporting on Your Return
For a non-business personal property rental, everything runs through Schedule 1 of Form 1040:
- Report gross rental income on line 8l
- Enter total deductible expenses on line 24b
- Attach Form 4562 if you’re depreciating any of the property
The line 8l income flows into Schedule 1’s total additional income, then to Form 1040 line 8. The line 24b adjustment reduces AGI on Form 1040 line 10. Because it sits above the line, the benefit reaches you whether you itemize or not, and a lower AGI can increase eligibility for education credits, the child tax credit, and other income-tested benefits.3Internal Revenue Service. Schedule 1 (Form 1040) – Additional Income and Adjustments to Income
Keep receipts, rental agreements, usage logs for mixed-use property, and records showing when depreciable assets were placed in service. The IRS can request documentation years later, and reconstructing a rental-use log from memory rarely ends well.
Two Taxes to Watch
Filing on Schedule 1 keeps you out of self-employment tax, which reaches only trade or business income. IRC Section 1402(a)(1) excludes real estate rentals from self-employment tax but does not extend that exclusion to standalone personal property rentals, so a rental large enough to qualify as a business owes self-employment tax at 15.3% on the first layer of net earnings reported on Schedule C.10Office of the Law Revision Counsel. 26 USC 1402 – Definitions
Whichever schedule you use, the 3.8% net investment income tax under IRC Section 1411 can still apply if your modified AGI exceeds $200,000 (single), $250,000 (married filing jointly), or $125,000 (married filing separately). Rental income is specifically listed as net investment income, and these thresholds aren’t indexed for inflation.11Internal Revenue Service. Questions and Answers on the Net Investment Income Tax
State Sales Tax
Federal income tax isn’t the whole picture. Nearly every state that imposes a sales tax also taxes rentals of tangible personal property, and the lessor is typically responsible for collecting the tax from the renter and remitting it. Failing to register can result in back-tax assessments with penalties and interest. Check with your state’s department of revenue before the first rental transaction.