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Security deposits are not rental income

Updated 2026-09-11 · Not tax advice

A refundable security deposit is money you are holding, not rent you earned. If it lands in the same category as rent, Schedule E line 3 is too high and your CPA has to unwind it.

How to record it

Put the deposit in its own category (security deposits), tagged to the property and tenant. Keep it off rental income while you still might return it. If you later keep some or all of it as rent or damages, record that as income then — not on move-in day.

What the CPA file does

RentLedger’s Schedule E download lists refundable deposits on a review sheet so they do not silently inflate rents. How the worksheet is laid out. This is not tax advice; your preparer decides the return.

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RentLedger.pro — web books + Schedule E file included, no bank login, for US DIY landlords.

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