Not if you're a tenant. If your landlord kept your security deposit, it's considered a personal loss which can't be deducted.
If you're a landlord, you may have to report the security deposit as income, depending on the situation:
- If you intend to return the full deposit to your tenant after the lease expires, don't report it as income.
- Likewise, if you already refunded the entire security deposit to your tenant, don't deduct it, as it wasn't considered income in the first place.
- If the deposit is intended to cover the final rent payment, it's considered advance rent and should be reported as income when you received it (not when it gets applied to the final rent payment).
- If you kept part or all of the deposit because your tenant vacated prematurely, the portion you kept is reported as income.
- If you kept part or all of the deposit due to property damage and your business practice is to:
- Deduct repair costs as expenses, then whatever you kept is reported as income.
- Not deduct repair costs as expenses, then only report the portion not used towards the repairs as income.