The only thing that will change is it would be best to increase your your rental income by the amount of the receipt as opposed to reducing your repair cost on your rental schedule E. The net rental income will be the same either way so it is not very important which way you do it. Also, you need to be careful that you didn't include the security deposit in rent income when you received it. If you did, then you shouldn't add it in again on your schedule E or deduct it from the repair.
You are correct about the second paragraph, the income is reported as other income which is personal income, then cancelled out by a negative adjustment to other income.
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