LLC received Security Deposit

Forum|Forum|1 year ago
January 29, 2025
3 replies
30 views

The partnership, owned by my spouse and myself only (we file personal taxes Jointly) received the 2024 1099-MISC from our one and only tenant. This year, the lease was extended for another 5 years and the tenant paid us an additional amount (for conversation let's say $3,000) to their security deposit. Our books show the original security deposit as a liability. As a result, when I received the $3,000, I booked the additional security deposit amount as a liability. Here's my problem...The $3,000 is included in the amount of the1099-MISC. I'm wondering what I'm supposed to do with Quickbooks entry or if TT will ask a question later that will fix this discrepancy. I appreciate the assistance.

DavidD66

Level 15

If your business is using the Cash method of accounting (which you probably are) then you should report the $3,000 deposit as income. When, and if you return the deposit, you will report it as and expense.

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rhondajoy125Author

Level 4

Thank you. I understand for TT that it is income yet I’m wondering how I reflect the liability on my QB file.

DavidD66

Level 15

If you want to show it as liability in QuickBooks you would simply record the transaction as a debit to cash (which is automatic for a bank deposit) and a credit to a liability account (e.g. Tenant Deposits). If you were recording it as revenue the credit would be to a revenue account (e.g. rent received). You can also do it with a Journal Entry if it's already been recorded.

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IanSt

Level 2

rhonda, I have my security deposits properly categorized as Other Liabilities. However, at the Review stage of my LLC tax return, TT flags that as an error b/c it says it cannot allocate what it is calling Recourse Debt. This is not debt, recourse or otherwise. Why is TT flagging as an error and what is the workaround? Thanks!

Rick19744

Level 13

Where are you inputting the 1099-MISC in TT?

Regardless of whether you are on the accrual method or cash basis method of accounting, if this amount is truly a security deposit, then this is not treated as income.

It would only be treated as income if:

You plan to use this payment as the tenants last month’s rent, or
You do not return all of the security deposit as some of the deposit was used to fix damage

This is technically a liability since it is “owed” to the tenant unless there is damage during the lease and the deposit is used for this purpose.

How is TT treating this for purposes of Schedule K-1 line K1?

Since I’m not in a Windows environment, I can’t access the Business software. Is this error precluding you from efiling?

*A reminder that posts in a forum such as this do not constitute tax advice.Also keep in mind the date of replies, as tax law changes.

IanSt

Level 2

As stated, I know it is a liability and I know how it should be treated. All I was asking is why the program will not allow it to be entered as a liability unless it gets lumped into non-recourse debt (which seems inappropriate). Yes, it does prevent e-filing, but I finally figured out that it just needs an allocation code after hours of monkeying around. It would be nice if TT provided clear help on this topic and guided the user to the different allocation codes available.