I had to switch property managers mid-year while a tenant moved out. The previous property manager reported the security deposit that was transferred to the new property manager as "other income" in box 3 of the 1099-misc he sent me. (I received two 1099-misc forms - one from each property manager.) But this security deposit was returned to the tenant by the new property manager and was not income to me. Is this a mistake? How do I report this "other income" reported in box 3 so that I don't have to pay federal and state income taxes on it? The new property manager only reported rents in box 1.
