The short answer

Record a refundable security deposit separately from rent so you can see money held for return rather than treating every bank deposit as earnings.

Calculator, coins, glasses, and a red pen on a lined notepad.
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Identify the payment purpose

For each receipt, record the tenant, property, amount, date and whether it is rent, a refundable deposit or another payment. Keep any later application or refund linked to that original entry. Do not use a bookkeeping category to decide what deductions are legally permitted.

The IRS says a deposit intended for return is not rental income when received; advance rent is different. [1]

U.S. federal tax treatment does not settle state deposit-account, interest or return rules. Check the property’s jurisdiction separately before handling deposit funds.

Sources

This article was generated by AI using the sources below. Editorial standards.

  1. Tips on rental real estate income, deductions and recordkeeping — IRSSupports the attributed passage: The IRS says a deposit intended for return is not rental income when received; advance rent is different. The practical workflow and labeled examples are the publication’s own applications, not source-reported cases. Source checked Sep 8, 2026.

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