A rental activity is any activity where gross income is derived principally from amounts paid by customers for the use of tangible property. However, an activity involving the use of tangible property is not considered a rental activity if any one of six exceptions apply. First, any use of tangible property for an average of 7 days or less is not treated as a rental activity.

Second, there is no rental activity where the period of customer use is 30 days or less and significant personal services are provided in connection with making the property available. Note: A facts and circumstances test is used to determine if personal services are significant, factors include type of work required, frequency of services, and the amount of charge allocated to the performance of the services. Third, extraordinary personal services are provided. Personal services are extraordinary if the tangible property is incidental to the purpose of the services. Similarly, fourth, the use of tangible property is minor in relation to the taxpayer’s non-rental activity.

In addition to the above, the non-exclusive customer use of property does not constitute a rental activity. This means there is no rental activity if the item of property is customarily available during defined business hours, i.e. a hand truck used for loading and unloading goods. Finally, property made available for use in a non-rental activity of a pass-through entity such as activity conducted by a partnership, or other joint venture. However, this exception applies only if the entity is engaged in non-rental activity.