Introduction

The rise of cryptocurrency has opened a new frontier for passive income, and one of the most popular ways to participate is by renting out mining rigs. Instead of buying and running a mining operation yourself, investors can lease their rigs to other miners and collect a steady stream of rental income. Although appealing, this strategy involves tax rules that can be perplexing without prior knowledge. In this piece we examine the main tax consequences for those renting out mining rigs, including income recognition, depreciation, Section 179, passive activity rules, and beyond.

What Is a Rental Mining Rig?

A rental mining rig is a hardware unit—usually a high‑performance graphics card or ASIC miner—owned by a person or company and rented out to a third party for a set duration. The tenant runs the rig, paying the owner a fee (commonly daily, weekly, or monthly) for the right to use the machinery. Electricity and maintenance are not supplied by the owner; the renter manages those operational aspects. In tax terms, the owner’s connection to the rig mirrors any other rental property: owning the asset, earning rental income, and being entitled to related deductions.

Income Recognition

Rental income from mining rigs is considered ordinary income for tax purposes. The IRS treats it as rental income under Section 469, which requires you to report the gross rental receipts on your tax return. If you rent a rig for $50 per day and lease it for 30 days, you must report $1,500 of rental income for that month. You report this income on Schedule E (Supplemental Income and Loss) if filing individually, or on the proper line of your business return—like Form 1120 if you run a corporation.

Deductible Expenses

Like any rental activity, you can deduct ordinary and necessary expenses that are directly related to maintaining and operating the rig. Typical deductions are:

The electricity cost incurred by the lessee (commonly passed to the owner as a separate charge).

Costs for maintaining or repairing the rig (e.g., 法人 税金対策 問い合わせ replacing a faulty fan).

Insurance premiums protecting the rig against loss or damage.

Loan interest paid for acquiring the rig.

Depreciation or amortization of the rig’s purchase price.

Depreciation of Mining Rigs

Mining rigs qualify as depreciable assets due to their limited useful life and depreciation over time. The IRS allows you to recover the cost of the rig through depreciation, which reduces taxable income. Tangible property typically uses the Modified Accelerated Cost Recovery System (MACRS) for depreciation. For most computer equipment, the recovery period is 5 years, and you can use the straight‑line or declining balance method.

Section 179 Expensing

If you purchase a mining rig in the same year you place it in service, you may elect to expense the entire cost under Section 179, up to the statutory limit ($1.16 million in 2024). In effect, you can claim the entire purchase cost in the acquisition year instead of depreciating over five years. Yet, if your combined equipment purchases exceed $2.89 million in 2024, the expensed amount phases out.

Bonus Depreciation

Following the Tax Cuts and Jobs Act, you can also claim 100 % bonus depreciation on qualifying property in the year it is placed in service. It lets you deduct the full rig cost right away, if you choose to. After selecting bonus depreciation for an asset, you’re barred from switching to MACRS depreciation later.

Self‑Employment Tax Considerations

Rental income is generally not subject to self‑employment tax because it is considered passive income. But should you actively oversee the mining operation—offering electricity, maintenance, or additional services beyond leasing—the income could be classified as self‑employment income. The main test is whether those services are integral to the mining operation. When the lessee manages all operational elements, the income stays passive. If you also provide significant operational support, a portion of the income may be subject to self‑employment tax.

Passive Activity Rules

Under the passive activity loss rules, rental real estate and rental equipment are treated as passive activities. This means you can only deduct passive losses against passive income. If passive losses exceed passive income for the year, the excess is suspended and carried forward. Nevertheless, a special provision applies to real estate professionals and active participants. Should you materially participate—working at least 500 hours a year—you might deduct losses against other income.

Reporting on a Partnership or LLC

A common strategy is to create a partnership or LLC to hold the rigs and share rental income among members. In this case, each member reports their share of income and deductions on Schedule K‑1. The partnership itself files Form 1065, and the assets are typically depreciated on the partnership's books. Section 179 or bonus depreciation may be elected by the partnership at the entity level.

Tax Planning Strategies

1. Maximize Immediate Deductions – Planning to sell the rig in the next few years? Bonus depreciation or Section 179 offers instant tax relief.

2. Consider a C‑Corporation – If you plan to keep profits and reinvest, a C‑corp can shift personal income tax to the dividend‑distribution stage.

3. Track All Expenses – Maintain detailed logs of maintenance, insurance, and other costs. This helps lower taxable rental income.

4. Separate Operational Costs – If the lessee pays for electricity, treat those charges as separate line items that can be passed through, keeping the income passive.

5. Use Lease Agreements – A written lease clarifies the nature of the rental relationship and can help demonstrate passive status to the IRS.

Common Pitfalls

Misclassifying Income – Treating mining rewards as rental income can trigger different tax treatment.

Forgetting Depreciation – Omitting depreciation or Section 179 may increase taxable income.

Overlooking Passive Losses – Failing to carry forward losses may cause you to miss tax benefits.

* Ignoring Self‑Employment Rules – Offering too much operational support can reclassify income as self‑employment.

Conclusion

Renting mining rigs gives investors a strong avenue for passive income, but the tax environment is intricate. Through grasping rental income reporting, optimizing depreciation and expensing, and keeping passive activity and self‑employment rules in mind, you can retain more of your profits. As always, consult a tax professional familiar with cryptocurrency and equipment leasing to tailor a strategy that fits your specific situation.