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Tax Schedule for Security Deposit

Gamal Mustafa

What Tax Schedule should I use for the category Security Deposit?

if I use Rent Received it would count as income.

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Accepted answers

Frankx

Hi @Gamal Mustafa,

You should not use a tax schedule reference because a deposit is not income nor is it an expense.

A rent deposit is an amount held by a landlord as security for a tenant. You should not record it as income, rather you should label it a "security deposit" until such time that it is either: a) returned to the tenant, or b) is recorded as rental income, to be applied to the failure to pay rent or to reimburse damages to the rental unit.

Let me know if you have any followups.

Frankx

NotACPA

That security deposit should be recorded in a LIABILITY type account.

It's money that you owe back to the Tenant (subject of course to any charges for damages, etc).

Frankx

Hi @Gamal Mustafa,

Yes, you definitely need to fix that entry.

In the future, if you enter the transaction from the register of the bank account that you make the deposit to, and you use the "[Security Deposit Liability]" account for the "Category" field, you will have no problem.

Right now that entry has both debit and credit to the same account - that's a "round trip" that cancels itself out - and makes no sense at all, except if you are just starting a new Quicken file and need to record opening balances and the like.

Take care.

Frankx

All comments

Frankx

NotACPA

That security deposit should be recorded in a LIABILITY type account.

It's money that you owe back to the Tenant (subject of course to any charges for damages, etc).

Gamal Mustafa

Ok. I went back to 2002 and change all of my “Security Deposit” and change it to [*Security Deposit Liability*]...

I notice that when I create a new tenant it will enter an entry into [*Security Deposit Liability*]

should I modify that entry and connect it with the entry on my checking account where I collected the money?

NotACPA

Gamal Mustafa said:

Ok. I went back to 2002 and change all of my “Security Deposit” and change it to [*Security Deposit Liability*]...

I notice that when I create a new tenant it will enter an entry into [*Security Deposit Liability*]

should I modify that entry and connect it with the entry on my checking account where I collected the money?

But, did you actually create a LIABILITY account? Or, did you just change the name of the category?

The Security Deposits that you receive from tenants should be recorded as TRANSFERS into that Liability account ... and Transfers don't have a category or an associated Tax Line.

Frankx

Hi again @Gamal Mustafa,

Here's what you should do:

1) Select "Tools" > "Add Account";
2) In the Property & Debt Section - Select "Other Liability";
3) In the "Account Name/Nickname box type "Tenant Deposits"
4) In the "This account is used primarily for" section select "Rental Property Transactions" (if that is not an option for your version of Quicken - select "Business transactions") - then click "Next";
5) On the next page fill in the date you will start tracking these deposits and the amount of deposits you currently have (if the deposit you currently were asking about is the only one you have and if you did NOT yet record the deposit in Quicken - enter zero in the Liability Amount box).
6) On the next page click "No" to the question - "Is there a loan on this liability?"
7) Click "Finish".

Once you add this account, you should then record any deposits you receive in this new account. Ultimately when your tenant leaves, and you return all or part of the security deposit to them, you'll post the payment you make to the departing tenant to this account.

Get back to me with any followups.

Frankx

Gamal Mustafa

NotACPA said:

Gamal Mustafa said:

Ok. I went back to 2002 and change all of my “Security Deposit” and change it to [*Security Deposit Liability*]...

I notice that when I create a new tenant it will enter an entry into [*Security Deposit Liability*]

should I modify that entry and connect it with the entry on my checking account where I collected the money?

But, did you actually create a LIABILITY account? Or, did you just change the name of the category?
The Security Deposits that you receive from tenants should be recorded as TRANSFERS into that Liability account ... and Transfers don't have a category or an associated Tax Line.

I am using "Quicken. Business & Rental Property" the liability account [*Security Deposit Liability*] has been there for a while now. I just never knew who to use it.

When I go to the tap "Rental Property" click on "Properties and Tenants" and "Add Tenant". When I enter an amount under "Security deposit collected" (see picture #1) it will add that amount into the [*Security Deposit Liability*] account (see picture #2). But I still have to register that amount into my checking account somehow. So I am guessing I must edit that entry and change in category/account section where it says [*Security Deposit Liability*] and change that to the Checking account as I did in the previous entries...

picture #1

Image: https://us.v-cdn.net/6031128/uploads/editor/bl/co4tw2bq66o5.png

picture #2

Image: https://us.v-cdn.net/6031128/uploads/editor/yr/rmxsl7h3wowx.png

Gamal Mustafa

Frankx said:

Hi again @Gamal Mustafa,

Here's what you should do:

1) Select "Tools" > "Add Account";
2) In the Property & Debt Section - Select "Other Liability";
3) In the "Account Name/Nickname box type "Tenant Deposits"
4) In the "This account is used primarily for" section select "Rental Property Transactions" (if that is not an option for your version of Quicken - select "Business transactions") - then click "Next";
5) On the next page fill in the date you will start tracking these deposits and the amount of deposits you currently have (if the deposit you currently were asking about is the only one you have and if you did NOT yet record the deposit in Quicken - enter zero in the Liability Amount box).
6) On the next page click "No" to the question - "Is there a loan on this liability?"
7) Click "Finish".

Once you add this account, you should then record any deposits you receive in this new account. Ultimately when your tenant leaves, and you return all or part of the security deposit to them, you'll post the payment you make to the departing tenant to this account.

Get back to me with any followups.

Frankx

ok, when the tenant leaves, and if I only return part of the security deposit to them How do I register what I keep? His original deposit was $2,000.

Like this?

Image: https://us.v-cdn.net/6031128/uploads/editor/eg/55zx1eny2m7j.png

Frankx

Hi again Gamal Mustafa,

You asked about the entry you should make if you only return part of the leasee's security deposit. The part that you keep is income to you at the time that you make the refund to the leasee. So if the catagory titled "Security Deposit Forfeited" is a taxable income category in your Quicken chart of accounts, then the entry is correct. If the category in not a taxable income category, you should change its attributes in Quicken.

Let me know if you have any other questions.

Frankx

Gamal Mustafa

Frankx said:

Hi again Gamal Mustafa,

You asked about the entry you should make if you only return part of the leasee's security deposit. The part that you keep is income to you at the time that you make the refund to the leasee. So if the catagory titled "Security Deposit Forfeited" is a taxable income category in your Quicken chart of accounts, then the entry is correct. If the category in not a taxable income category, you should change its attributes in Quicken.

Let me know if you have any other questions.

Frankx

Ok. This is what I have (I used to have a category called "Security Deposit", but I change that to a "Liability" account)

Image: https://us.v-cdn.net/6031128/uploads/editor/yu/ml77jrvyzihd.png

Frankx

@Gamal Mustafa,

All of those accounts look good! Nice work!

Let me know of you have any followups.

Frankx

Gamal Mustafa

Gamal Mustafa said:

NotACPA said:

Gamal Mustafa said:

Ok. I went back to 2002 and change all of my “Security Deposit” and change it to [*Security Deposit Liability*]...

I notice that when I create a new tenant it will enter an entry into [*Security Deposit Liability*]

should I modify that entry and connect it with the entry on my checking account where I collected the money?

But, did you actually create a LIABILITY account? Or, did you just change the name of the category?
The Security Deposits that you receive from tenants should be recorded as TRANSFERS into that Liability account ... and Transfers don't have a category or an associated Tax Line.

I am using "Quicken. Business & Rental Property" the liability account [*Security Deposit Liability*] has been there for a while now. I just never knew who to use it.

When I go to the tap "Rental Property" click on "Properties and Tenants" and "Add Tenant". When I enter an amount under "Security deposit collected" (see picture #1) it will add that amount into the [*Security Deposit Liability*] account (see picture #2). But I still have to register that amount into my checking account somehow. So I am guessing I must edit that entry and change in category/account section where it says [*Security Deposit Liability*] and change that to the Checking account as I did in the previous entries...

picture #1

picture #2

NotACPA I still have doubts about this...

Should I edit that entry and change in category/account section where it says [*Security Deposit Liability*] and change that to the Checking account as I did in the previous entries?

Frankx

Hi @Gamal Mustafa.

The entry that you are making above, dated 7/31/20 for "John Smith" is not correct. The "Category" should be the bank account in which the "collected security deposit" was actually deposited in. So the short answer to your question above is "yes".

Frankx

Gamal Mustafa

That entry is done automatically by quicken when I add a new tenant.

ok. So after quicken create that entry, then I need to update that entry.

Frankx