You will need to report the rental income and then enter an expense for the same amount, so the net income will be zero. You can label the expense Returns and Allowances or something similar. If you don't report the income, the IRS will probably assess tax for it sometime in the future, then you will have to deal with convincing them that the income reported was a returned deposit.
**Say "Thanks" by clicking the thumb icon in a post
**Mark the post that answers your question by clicking on "Mark as Best Answer"
