Security Deposit on a rental Property

I started renting a property in December and got a security deposit from the tenant.  Per the IRS page i thought I read that security deposits are not to be included if it is intended to be returned to the tenant in the future.  My only issue is that 1099-MISC that I received from the rental company includes the first month rent and the security deposit totaled in the rents line.  Am i supposed to include the security deposit or not?
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    You are correct that security deposits are not to be included in income.  On the business' balance sheet (even if it doesn't formally prepare one) that deposit is recorded as a liability.  And, when you return the deposit it's not an expense.  The liability just goes away.

    Your responsibility as a taxpayer is to properly report your income and expenses.  You don't distort things in order to conform to a 1099, and you don't omit things because it wasn't reported on a 1099 or some other informational return.

    If the IRS ever asks why your income doesn't conform to this 1099-MISC (they probably never will) you'd explain the situation and that would be that.

    Tom Young
    • Not conforming to a 1099 can trigger an audit. This has happened to me in the past when briefly deposited money, but was returned to me due to IRA's company error and never corrected to the IRS. So what is a better so IRS never questions the tax return?
    • Nice idea to just keep notes and it right.  But turbotax doesn't let you do that -- you have to fudge the 1099 entries, if they are wrong.
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