I have the same issue. I use Zillow Rental Manager to receive rental property payments plus a new tenant's security deposit in 2022. Zillow send me a 1099-K, even though with the late December 2022 delay in implementing the new threshold ($600 and any amount of transactions) they were not required to. So I must presume they sent the 1099-K to the IRS as well.
The 1099-K, the amounts listed on it do include the security deposit plus the monthly rent I received. So what to do in TurboTax?
Option A - report only the actual amount of the rental income on the 1099-K section - and surely it will be picked up in an IRS scan as an incorrect amount and trigger an audit
or
Option B - follow the advice above - report the full reported 1099-K amount as "income" and include a "Expense" in the amount of the security deposit received - entitled "Funds moved to hold Tenant Security Deposit" and hope that works?
FYI - The IRS explicitly states in IRS Pub: "Topic No. 414 Rental Income and Expenses", "Don't include a security deposit in your income if you may be required to return it to the tenant at the end of the lease."
So this appears to me to be legitimate advice. Thank you
John S.
