Must I report a deposit made in 2018 for a week's rental of my vacation home in 2019 on my 2018 return, or can I report it on my 2019 return?

[CC248]

If I report the deposit made in 2018 for a 2019 rental week and I rent for fewer than 14 days in 2019,  how would I get a refund for the tax paid on the deposit?

[IreneS · Accepted solution]

If you are on a cash basis (rather than accrual) you report income when you receive it.  However, security deposits are not included in income when you receive them if you plan to return them to your tenants at the end of the lease. In contrast, deposits for the last month's rent are taxable when you receive them, because they are really rents paid in advance.

[Opus 17]

@CC248 I don't know what you mean by a refund for the tax on the deposit.  If you will return the deposit, then you don't report it as income now.  If the deposit is refundable up until X days from the rental, and then it becomes non-refundable, that is also the day it becomes income.

[CC248]

Thank you.

[Opus 17]

Cash basis taxpayers report income when they actually receive it, and expenses when they actually pay them.

The exception is if you set up your business to use the "accrual" accounting method.  But this is complicated, requires an accountant to help you set up, and is uncommon for small businesses.  If you had an accrual accounting method, you wouldn't be asking this question.

[Opus 17]

But deposits are not income, unless they are non-refundable.  See the better answer above.