LLC received Security Deposit

[rhondajoy125]

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]

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.   

[rhondajoy125]

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

[DavidD66]

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.

[rhondajoy125]

That is not how our accountants years ago, booked the original anmount and I prefer to keep it as a current liability. I checked with IRS website and I’m wondering why your response is different than their recommnendation. Here is what I found on IRS website which reflects our position on the matter. Please let me know why you are recommending it to be income for 2024. Thank you.

Security deposits

Do not include a security deposit in your income when you receive it if you plan to return it to your tenant at the end of the lease

[DavidD66]

You are correct.  If you don't plan to apply the security deposit towards the last month's rent then don't recognize that amount as rental income.  

[rhondajoy125]

Since the tenant included the security amount on their 1099-MISC, I reached out to them and have yet to hear back so I’m wondering how essential it is that the 1099-MISC not have the amount of the Security Deposit included on it. Thanks  

[AmyC]

You need for the 1099-MISC income to match what was given you. I would remove the $3,000 under other expenses and label it as a security deposit wrongfully added on 1099. You can remove the income as you see fit, but having a label and reason makes the most sense to me.

If you need help with your QuickBooks entry, you can check QB Support or contact QB.

[rhondajoy125]

Thank you, I’m going to see if my tenant can update their 1099-MISC; if not I will follow your directions here. Thanks!