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Rental Income Rules for Security Deposits
 
Rental Income rules for security deposits   General Rules  
Each state has slightly different rules regarding deposits collected when a new tenant moves in.  Deposit can be collected for utilities, cleaning, damages, last month rent and some other purposes.  Deposits can be refundable or nonrefundable in some cases.  The rules will vary from state to state. 
A deposit is a liability.  In other words this is money that you may have to return at some future date.  Because of this many states have enacted rules regarding what can and cannot be done with these funds.  In Washington State, these funds must be deposited in a separate bank account and that information disclosed to your tenant.  These funds must be held in trust.
http://www.rentlaw.com/securitydeposit.htm
 
Federal Income tax rules applying to deposits  
For tax purposes it is important to know the purpose of any deposit.  Money that is being held in trust to pay for any future damages or refundable cleaning  must be returned within a certain number of days unless written notice is provided as to why any amount has been withheld.  This money is not considered income at the time it is received for tax purposes.  ... more

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